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How would you compare NPS with PPF?

Dhirendra Kumar highlights the difference between NPS and PPF


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How do you compare NPS with PPF? Which one should I select to invest?
- Kannan Nadar

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They are not comparable. NPS is a portfolio wherein you can actually decide and choose your allocation. It is almost like a mutual fund targeted to save for your retirement. On the other hand, PPF is a product yielding a guaranteed fixed income.

However, both are tax-free and have the EEE (Exempt, Exempt, Exempt) status. The amount invested in them can be availed as a deduction under Section 80C. The gains, value appreciation in the case of NPS and interest in the case of PPF, are also exempt from tax. Further, the lump-sum withdrawal amount on maturity of both is also not liable for taxes.

But I am hopeful that within a period of 10-15 years or more, NPS with the highest allocation to equity will give substantially higher returns. It is because NPS comes with the lowest expense and gets you an equity exposure, along with all the tax breaks. So, from that standpoint, you should consider NPS if you are trying to maximise your return. Just be regular with your investment. It's nothing but a mutual fund which can have a maximum 25 per cent allocation to equity. However, your money will be stuck till your age of retirement much like PPF, wherein your money will be stuck for the next 15 years.

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