NPS Vatsalya Plan
The government has started the NPS Vatsalya scheme. Finance Minister Nirmala Sitharaman has started this scheme and the government also wants more and more people to invest in this scheme.
Sitharaman said at an event on Wednesday that NPS has given the government sector a CAGR of about 9.5% since its inception in a single scheme. For the non-government sector, the returns have been 14 percent in the equity segment, 9.1 percent in the debt category and 8.8 percent in government bonds. That is why the government has now come up with this scheme in the name of children.
The scheme has a lock-in period of 3 years
The scheme allows a maximum withdrawal of 25% of the corpus after a lock-in period of 3 years, with a maximum of three withdrawals allowed. Notably, if the total corpus exceeds Rs 2.5 lakh, one can opt to withdraw 20% in lump sum, while the remaining portion must be used to buy an annuity.
Conversely, if the deposit amount is equal to or less than Rs 2.5 lakh, the entire amount can be withdrawn in one go. Additionally, in the event of the account holder’s death, the appointed guardian has the right to withdraw the entire amount.
How is PPF different from this?
The Public Provident Fund (PPF) scheme is a government-backed, long-term investment option. Its biggest advantage is that the interest and returns earned on it are not taxable.
Minimum tenure of PPF scheme
The minimum tenure of the PPF scheme is 15 years, which the investor can extend in blocks of 5 years as per his wish. The investment limit for PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year. Investors have the flexibility to invest in a lump sum or in a maximum of 12 installments throughout the year.
To open a PPF account
To open a PPF account, a minimum monthly contribution of only Rs 100 is required. It is important to note that any annual investment above Rs 1.5 lakh will not earn interest and will not be eligible for tax saving benefits. Deposits in a PPF account must be made at least once every year for the entire duration of the chosen term, which is initially set at 15 years and can be extended in blocks of 5 years.
Difference between NPS Vatsalya and PPF
It is important to note a few points here. PPF is a government-guaranteed scheme, which makes it safe, but the return on investment is low, while NPS has equity-linked returns. Secondly, PPF is an investment scheme, while NPS Vatsalya is a pension scheme that lasts for a period of more than 18 years.
National Pension System at KFin Technologies
Rajesh Khandagle, Head of National Pension System at KFin Technologies, said, “People often mix and compare all investment options, but it is important to recognize their fundamental differences. NPS Vatsalya and PPF are two different investment options with different goals. The first difference between them is returns. PPF is a government-guaranteed scheme, which makes it safe, but has a lower ROI (often ranging between 7-8% annual returns); NPS has equity-linked returns, which allows it to generate a higher ROI.”
Second, the purpose of PPF
“Secondly, the objective of PPF is to instill a sense of investment and secure returns in the minds of investors. But NPS is offered as a pension scheme, which means longer lock-in period, higher compound interest and more wealth creation, all with the same objective – retirement planning. While PPF has tax benefits of only up to Rs 1.5 lakh, NPS offers potential tax savings of up to Rs 7.5 lakh in a financial year. For these reasons, we should not compare NPS benefits with PPF and look at them as two different investment options.”