PPF vs NPS: Which will accumulate Rs 1 crore faster

Public Provident Fund (PPF) and National Pension System (NPS) have been two of the most popular retirement investment options recently. While PPF is exclusively debt-oriented funded by the government, NPS is a market-linked programme. While PPF gets a fixed rate of interest decided by the government every quarter, NPS returns are based on investment mix and market but the latter is strictly regulated.

PPF is a completely debt-oriented programme guaranteed by the government and pays a floating rate of interest of 7.1 percent compounded on an annual basis. NPS consists of both debt and equity wherein the rewards are based on the market performance. The duration of the PPF account is 15 years and following the account maturity, one can either depart or ask for extension. On the other hand, in NPS, the period of investment is till superannuation or 60 years of age whichever is earlier.

Which will accumulate Rs 1 crore faster:

PPF:

To earn Rs 1 crore from a PPF, investors must be patient and invest regularly for 25 years at the present interest rate of 7.1 percent. If a person invests Rs 1.5 lakh in a PPF account every year at a rate of 7.1 percent, it will take them 25 years to become a crorepati. This is due to the power of compounding, which may be used to make regular long-term investments in PPF.

According to experts, the longer money is invested, the more it increases. If someone invests Rs 12,500 per month (the maximum monthly investment allowed in PPF) and keeps the account open for 15 years, they will have earned nearly Rs 43 lakh at maturity, providing the interest rate maintains at 7.1 percent.

If the account is extended for another five years, the PPF account balance will be around Rs 73 lakh after investing Rs 1.5 lakh per year for 20 years at 7.1 percent (initial extension). If the investor continues to contribute Rs 1.5 lakh per year for another five years, the PPF account balance will be over Rs 1 crore after 25 years, provided interest remains constant at 7.1 percent during the investment period.

NPS:

If an investor spends Rs 12,500 per month or Rs 1.5 lakh per year (at the same rate as investor A) in NPS, it will take them approximately 13.5 years to build a corpus of Rs 1 crore. The NPS corpus will be Rs 1.67 crore after 25 years, compared to Rs 1.03 crore in PPF maturity value.

It's worth noting, however, that in the case of NPS, the maturity payment is paid after superannuation or at the age of 60. In addition, PPF offers income tax benefits of up to Rs 1.5 lakh every financial year, as well as tax exemption on interest generated on the investment amount and the final maturity amount, which are not accessible in NPS. Another disadvantage of NPS is that at least 40% of the maturity value must be converted into annuities.