Should I prefer PPF or NPS for Retirement Planning? NPS versus PPF when you have 30 Years to Retire

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Are you confused about whether to opt for an equity and debt instrument like the National Pension System (NPS) or a fixed income product like the Public Provident Fund (PPF) for creating your retirement corpus? Don't worry, you're not alone. Many people face this dilemma when planning for their retirement. In this video, we will compare NPS and PPF from a mathematical standpoint to help you make an informed decision.

Let's start by addressing a common concern that people have with NPS—the provision that states you can only withdraw 60% of your NPS accumulation at retirement, while the remaining 40% needs to be invested in an annuity. This provision often raises questions and doubts. However, when we examine the numbers, you might be surprised at the outcome.

Let's consider the scenario of a 30-year-old individual who has 30 more years until retirement. If this person invests 1 rupee in a PPF account, which offers an annual interest rate of 8%, that rupee would grow to 10.07 rupees over the span of 30 years. On the other hand, if the same rupee is invested in NPS, which has an average return of 10%, it would grow to 17.45 rupees.

The difference between these two growth rates is indeed significant. However, what's truly remarkable is that 60% of the accumulated amount in NPS, which amounts to 17.45 rupees, comes to 10.47 rupees. Surprisingly, this is higher than what the PPF scenario would have given us if we had invested the same amount.

This revelation should give you some food for thought. While the provision of withdrawing only 60% of your NPS accumulation might initially seem restrictive, the higher growth rate compensates for it. Ultimately, it can potentially result in a larger corpus compared to investing solely in PPF.

It's important to consider that both NPS and PPF have their own unique features and benefits. NPS is a market-linked instrument that offers the opportunity to invest in equities and debt, which can lead to higher returns in the long run. However, it also comes with certain risks associated with market fluctuations. On the other hand, PPF is a fixed income product that provides stable and guaranteed returns, making it a safe option for risk-averse individuals.

Also remember, this comparison is based on mathematical calculations and assumes historical average returns. Actual returns may vary, and it's important to conduct thorough research and seek professional advice before making any investment decisions

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Disclaimer: I am not a SEBI registered investment advisor or research analyst. The content posted on this platform is purely for educational purposes and none of it constitutes investing or trading advice. Viewers should do their own research and diligence before investing or acting on the information presented

[huraankur]

No one apart from Shankar Sir can think about such real life inv qtns like these. He touches working prof minds.

[nikhilkanojia]

But ppf we can withdraw after 15 years . Say we invested at age 30, and by age 45 the corpus will be more than 40 lakhs if we are investing 1.5 lakhs per year. But in nps we have to stay invested till age 60 and then we can withdraw the 60%. In my opinion we should have investment in both the plans to reap the benefits. Also in PPF, we can extend by 5 years, say at age 45 we extend it by 5 years, then the percentage will be more than nps. For the lesser corpus we have to wait additional 10 years to reach the age of 60 via Nps. It all depends on what age we are investing. Thanks

[AjayGupta-xmhr]

Plus the additional tax rebate in NPS under 80CCD, which is not applicable in case of PPF

[SukhchainGoyal]

It has been approx 6 years I have been invested in NPS, 7.9 is all I am getting. 10% NPS is pipe dream.

[AB-mozp]

Very clear explanation. While NPS has better tax benefits over 80C, the withdrawal conditions seems quite complex to understand...

[ManishSoni-zpjb]

Absolutely agree, and one who retires at any age who need a fixed income per month. One can use this 40% corpus of NPS to create annuity with ROP.

[sakthivelr]

Thank you so much. A big fan of your videos right from ET money days. We need a complete video on EPF - mainly withdrawals during retirement, can we withdraw the eps component completely instead of having it as monthly pension? Lot of questions arises on how EPF works when you reach the retirement age. I know you have spoken about this on ET money but we need still more clarity on how we can use EPF during retirement.

[priyeshjammula]

Pretty interesting perspective! But can't ignore the flexibility of PPF withdrawal and far lesser lock-in period.

[hemanginiramesh]

Great example for those who just look at interest rates & are confused between PPF Vs NPS. But aim is retirement & not to withdraw money before it. 👍

[yogeshraina]

You are requested to take the both pension parts as well in terms of an employee under nps ans ops as well

[ramavtarmitramandalbhayand]

No one explains NPS vs PPF with such a wonderful explanation 👌👌👌

[AdithyaRA]

Thank you sir. Can you please share your thoughts on NPS just like you did with PPF video. There is lot of videos which reads the brochure, i am looking for understanding the product from an average person and it's impacts and benefits like you described above which no one talks about.

[akshaysavoor]

Thank you for this. Gives us good perspective. Just a couple of clarifications, are returns on NPS tax free? Or is the 10 % that you assumed for NPS a post tax return ?

[sdileeponc]

You are absolutely remarkable in imparting very sound analysis and advice sir
I really enjoy your videos
Thank you so much for your contribution

[bangalore]

NPS will give more than 15%

U need to invest 75% in equity & rest 25% in corporate or govt bonds

In fact, for me it the return is showing more than 20%

[Apache]

Sir, can you do a video on how to rebalance portfolio in NPS to maximize fund returns & which fund manager to choose ? I have currently selected 75% Equity & 25 % G-bonds with HDFC as fund manager. Is this choice right for the current market conditions or should i move it fully to G bonds as the inflation is coming down ? Thank you

[ngopalakrishna]

PPF returns is 7.1% only, so it further skewed towards NPS. Thanks, nice way to answer this question.

[biswajyoti.]

shankar sir always hits at sharp points!! 🙌

[Saptarshidey]

NPS is good if the employer contributes to pension fund. Makes more sense then.

[debojyotipramanick]

Great video as usual sir . Just to add ppf is even lower than 8% and nps should easily give more than 10% over long term if aggressive choice is selected