Mumbai, December 6 - Market is replete with various kinds of financial instruments, both in debt and equity space. However, an individual investor has to choose a financial instrument carefully which will help him to reach his financial goal.

When an individual investor looks for long term savings products to secure his retirement or to meet important social obligations like education or marriage of his child, financial instruments like Public Provident Fund (PPF) and National Pension System (NPS) come to the fore. But, financial planners are of the opinion that features of both these products vary a lot and one should understand these products fully before committing long term money. 

“These two products have different features suiting the needs of different sets of people. While equity investment is allowed up to 50% in NPS, PPF is a purely debt product. Also, the taxation structure in PPF is more attractive as compared to NPS,” Melvin Joseph, a SEBI registered investment adviser, and founder of Mumbai-based advisory firm, Finvin Financial Planners told ‘The Finapolis’ on December 6.

Arguing on NPS vs PPF, he said it is advisable to opt for PPF as a long-term savings product than NPS due to the current taxation structure.

“Currently, only 40% of the accumulated NPS corpus is exempted from tax during withdrawal at the time of retirement. Also, it is mandatory to buy an annuity product in 40% of the corpus. As annuity rates in the country are very low, an individual will not receive desired return from such investment,” Joseph said. Even interest on annuity is currently taxed, making the product unattractive, he added.

In the big fight on NPS vs PPF, which is better, PPF gets EEE (Exempt, Exempt, Exempt) tax treatment. It means deposits at the time of investment, interest earned during investment period and withdrawals are tax exempted. It is a long-term debt product with a 15-year maturity period, which is extendable by 5 years.

“We prescribe subscription to PPF as the tax treatment is better than NPS. Though it is purely a debt instrument, investors should have a portfolio of PPF along with investment in other equity instruments to generate higher return,” Joseph of Finvin Financial Planners said. He also said extension of PPF post maturity by 5 years without any limit of time period makes it very attractive for investment.