Public Provident Fund (PPF) scheme is a popular long term investment option that is being backed by the Government of India. It provides interest rates and returns that are fully exempted from tax. Whereas, Pension accounts or National Provident Fund (NPF) is a kind of investment where a fixed sum is paid on regular basis. This invested sum becomes available after retirement. Pension plan can also be said as ‘Defined Benefit Plan’.
Though somewhat the two schemes serve the same purpose of keeping the future secure and framing a retirement plan, they have some major differences. To name a few:
Any resident of India can invest in or have a PPF account. These accounts can also be opened in the name of minors (residents under the age of 18). On the other hand, pension account can be opened or owned by someone from the age group of 18 to 60 years. While Non-Indian residents can have a pension account, they are not eligible to have a PPF account.
A PPF account matures in 15 years. This term can further be extended by 5 years to the maximum. There is no maturity period in terms of pension account. One can invest in it till the age of 60 years, with a maximum leverage to invest till the age of 70. This is why these are retirement planning pension plans; the basic purpose being post retirement security.
The minimum limit of investment in a PPF account is Rs.500 to maximum of Rs.1,50,000 annually. Whereas, in a pension account, the minimum limit if Rs. 6000. There is no maximum limit, until the deposited money is 10% of the salary.
After the 7thyear in a PPF account, partial withdrawals are allowed and so is taking loan on your PPF account. In a pension account, withdrawals are allowed only after 10 years.
In a PPF account, the contributed amount, the return and the maturity amount are all tax exempt. While, even though pension plans are tax exempt, if retirement pension lump sumis withdrawn, then partial taxes are applied (up to 40% of maturity amount).
For PPF account holders the interest rate is announced quarterly, while on the other hand returns from pension account the rate is market-linked. Yet the returns from pension accounts are usually more than PPF accounts.
- Options of investment:
There are no main discretions when investing in PPF account but while adding money in pension account, a mix of three can be chosen- equity funds, government security funds and fixed income instruments.
Pension plans come with benefits like inherit pension rules, while PPF accounts have benefits like being tax exempted. Both the schemes vary from one another as PPF focuses on long term investment that might start from a minor age and Pension accounts are smooth retirement pension calculator. Though both have different benefits and policies, they are often mistaken to be the same. Investing in these two policies offer durable asset and inevitable stability. If invested in one of them, there is no restriction about investing in another (the common myth of people).