NPS V/S PPF - A Comparative Analysis

One of the legacies that we inherit from our parents - as far as Investments and Tax Savings are concerned - is Public Provident Fund. One of the most prolific tool of investments in India, it’s returns has been more or less stable in the range of 8-9.5%. But as Shri Krishna said in Gita- Only things constant is Change, similarly with the changing times and economic conditions, government plans to provide alternate to this avenue in the form of National Pension Scheme i.e. NPS. Government is pushing it in big way due to following reasons -

1. To mobilise small investors’ money to equity market
2. To mobilise money to Corporate Bonds.
3. To promote non- guaranteed pension culture

So let’s compare them from a small investor's point of view.

(Its recommended to go through this article on National Pension Scheme to get a better idea about the same)

1. Risk and Returns -
1. Returns in NPS may wary from 10-14% depending on your exposure across different categories available under NPS. Similarly risk level also depends on your relative exposure.
2. PPF - Returns vary from 8-9.5%. Almost risk free as guaranteed by government.
2. Liquidity -
1. NPS - Investments are practically blocked till investor attains 60 years of age, even after that you can withdraw only 40% of the money as rest of money has to used to buy some pension plan. If you want to withdraw before 60 years of age , you can withdraw only upto 20% of the money.
2. PPF - Money can be withdrawn 15 years after the start of PPF fund.
3. Taxation -
1. Lumpsum investments upto 2 lakhs are eligible for Tax Rebate (i.e amount invested is deductible from income for calculating taxable income) Salaried people can also avail some further deduction by investing 10% of their Basic and DA into NPS.All the appreciation earned on the investments is taxable, unlike PPF where appreciation i.e. interest is tax free
2. Investments upto 1.5 lakhs under PPF are eligible for Tax Rebate.
4. Investment Size -
1. While NPS don’t have any upper limit on investments , PPF don't allow more than 1.5 lakh investments in one financial year.

Hence whether NPS will prove to be a strong alternative to PPF or not will depend on whether small investors are ready to sacrifice the relative pros of PPF for pros and cons of NPS.

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How to avoid "Greece Crisis" with your personal money

Recently while going through newspaper , my dad turned to me and said in his typical “we know it all , when it comes to money management” tone - See how Greece Crisis once again proves the importance of diligent money management.

Parents!!!!

One of the most common trait of successful people and organisations is that they treat crisis as an opportunity to learn lessons on how to avoid them. In the same manner Greece Crisis , though at the country level, provides an excellent opportunity to revisit how we should manage inflows and outflows of our personal money.

So lets go have a look at how to avoid debt i.e. loan crisis -

1. Never live beyond your means - Typically pensions range from 40% to 50% of last drawn salary, but in Greece it may go upto 96%, which is simply not sustainable. Similarly spending beyond your income will eventually lead you to what is called in banking terminology - Debt trap.

2. Never go for Easy Debt - Being a part of European Union, Greece could avail of debt at a very low rate and without much of diligence on part of creditors. This easy availability of debt makes one vulnerable towards availing “non-required debt”. This generally happens in case of Credit Cards  where ready availability of debt sometimes simulates one to subscribe debt. Never EVER spend on Credit Card just because you have credit limit available. Spend only if you are spending on something worth utility to you.

3. Timely Service of Debt - Another reason that pushed Greece to the extreme was delayed service of their loan outstandings. Despite all the planning and management loans are many a times unavoidable or even suggestible to avail. But timely service i.e paying your EMIs on time and pre-closing your loans whenever possible is very critical to ensure that you are not made to pay penalties or there is no increase in your liabilities.

4. Aware about Terms and Conditions - Be always inquisitive about the terms and conditions related to any loan which you intend to avail. Devil lies in details , similarly in case of loans , devil lies in fineprint of the agreement. Always go through it as much as possible.

5. Loans within limits - Thumb rule says that sum of your EMIs should not exceed 50% of your monthly income. So always ensure that your EMI liability is lower of this limit and what is left net of expenses in your income.

If you want to learn what money mistakes you should avoid in your 20’s , Click Here .

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