PPF & NPS & ELSS – myMoneySage Blog

PPF

1. Following is how the PPF Interest rates have changed over the years

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NPS

1. Regulator recently has increased the entry age into NPS from 65 to 70 years. Earlier the entry age was 65 years. Now, anyone between 18-70 years would be able to subscribe to NPS. Now, there is a lock-in period of 3 years for new subscribers joining NPS after 65 years. The maximum age for exit is 75.

2. Now subscribers can withdraw 60% of the corpus as a tax-free lump-sum and they need to use the remaining 40% of the maturity corpus for buying an annuity. However, if the maturity corpus is below Rs 5 lakh, the subscriber can withdraw the entire amount. Subscribers joining NPS after 65 years can exercise the choice of Pension Fund and Asset Allocation with the maximum equity exposure of 15% and 50% under Auto and Active Choice respectively. The Pension Fund can be changed once per year whereas the asset allocation can be changed twice.

NPS Returns

1. In equities all funds over last one year returns are lower due to unfavorable market conditions, over 3 and 5 years period the returns are higher than 2% – 3% from the equity NPS.

2. Previously the spread between Corporate Debt NPS & Debt Mutual Funds was about 2%-3.5% but now it is reduced merely to 1%.

Also read: All about investing in Sovereign Green Bonds

ELSS as a Tax Saving Option

1. Investors with relatively higher risk appetite and who has goal horizon of 5 to 7 years ELSS is one of the suitable  tax savings options under 80C.
2. ELSS provides multiple benefits like capital appreciation, tax savings and tax free returns along with least lock-in period of 3 years among other 80C investment avenues.

PPF VS ELSS

1. Let us compare the returns for 50,000 invested every year in an ELSS and PPF over a period of 9 years.

2. If you had invested Rs 50,000 annually in your PPF in 2001,the PPF corpus as on September 2014, was 11.4 Lakhs, along with the cumulative investment of 6.5 Lakhs over a period of 13 years.  If you had Invested 50,000 annually in PPF from 2013, the PPF Corpus as on March 2021 was 6.27 Lakhs along with the cumulative investment of 4.50 Lakhs over a period of 8 years.

3. Chart below reveals PPF returns during the Investment tenure:

4. On the contrary if you would have started with 50,000 as yearly investment in any top ELSS fund in 2013, the corpus was 8.72 Lakhs in March 2021.

This is a reason why one should look for the investments in ELSS funds where the investment period is more than 7-8 years. It allows your investment to grow over the time and create wealth for you.

ELSS vs NPS

1. Equity Exposure: Equity Linked Savings Scheme (ELSS) have equity exposure in the portfolio where there are no restrictions on the exposure. On the other hand NPS has also increased its equity exposure from 50% to 75% based on investor choice which provides the flexibility for aggressive investors to take higher equity exposure within the NPS. 

2. Returns: ELSS is purely equity based scheme so returns will be always higher as compared to NPS which has limitations on the equity exposure.

PPF vs. NPS vs. ELSS

So which of these three?

1. Your Investment preference should be defined by your short/long term objectives and risk profile. Risk Profile is based on many factors. Financial situations, age, occupation are the few important elements of the risk profile.

2. Investors who understand risks involved in equity should consider the option of ELSS and NPS. Others should invest in the PPF. Wealth creation over the period of time is much higher with ELSS.

3. ELSS is suitable for young investors who have aggressive risk appetite and time to sustain different momentums of markets can only look for ELSS as an option for horizon of 5-8 years. 

4. NPS is suitable for such investors who are looking for Investment Avenue which gives them flexibility to invest in mix of asset classes like debt, equity and government securities. NPS is better option for the investors who have long term investment horizon and want to specifically save for their retirement and tax savings purpose.

5.  PPF is suitable for the Investors who are 10-15 years away from their retirement and wants to create a corpus by investing in PPF. Your risk tolerance level decreases as you are near to retirement age. So for such investors PPF is a good bet for them. PPF provides stable returns over the period, one who wants to stay away from risky asset class and is fine with nominal returns over the long term can invest in PPF.

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So where, finally?

If you are still undecided where to allocate your investments a combination of ELSS and PPF or only NPS might be the right option for you. The choice becomes clear if you align your investment products with your asset allocation and investment horizon. If you think you need professional help, Click here to get a Free evaluation of your investment portfolio from expert Investment Advisers 

Disclaimer:

This article should not be construed as investment advise, please consult your Investment Adviser before making any sound investment decision. If you do not have one visit mymoneysage.in