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Compare NPS, PPF & Equity Mutual Funds for an Investor

Planning for Retirement

Presented By: Enrollment No.Alpha Nayak E13CC1079751Anupriya Singh E13CC1078654Karishma Biswal E13CC1081714Smruti Ranjita Suar E13CC1079865Subhasantak Mohanty E13CC1081206Sujnani Kumari Gupta E13CC1080945

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Agenda

1. Introduction

2. Requirement and Risk bracket of a person planning for retirement

3. Investment options for retirement planning

4. National Pension Scheme (NPS)

5. Public Provident Fund (PPF)

6. Equity Mutual Funds (EMFs)

7. Better illustration with an example

8. Individual estimation for retirement planning in NPS, PPF & Equity mutual funds (EMFs)

9. Comparison between NPS, PPF & EMF

10. Conclusion

Introduction Retirement can be termed as the most important and sensitive phase

of an individual’s life. People depend not only emotionally and physically, but also financially as they age. Only those who are employed can avail financial independency.

Now, this is true even for this day, as we speak (just like it was earlier). The schemes being the same as before, all that is new for now are the changes, amendments & up gradations.

Retirement basically deals with: rising medical expenses, personal expenses (like son/daughter’s marriage), etc.

To take care of all these, there has to be a properly chalked out “PLANNING”.

As planning always says “Sooner, the Better”.

And we say, “ With a proper planning at hand, war against retirement is half won!”

Requirement and Risk bracket of a Person Planning for Retirement

Regular stream of income

Variation in risk taking capability being inversely proportional to that of the investor’s age

Capital protection

Investment options for retirement planning

Various options before an investor planning for retirement are :

EMFs (Equity Mutual Funds)

PPF(Public Provident Fund)

EPF(Employee’s Provident Fund)

NPS(National Pension Scheme)

POMIS(Post Office Monthly Income Scheme), etc.

Of which we have been given, to describe and compare 3 schemes, namely: NPS, PPF & EMFs

National Pension Scheme(NPS)

Some features and Benefits Of NPS: It is voluntary -NPS is open to every Indian citizen. You can choose the amount you want

to set aside and save every year. Extending old age security coverage & income to all citizens

It is flexible -You can choose your own investment option and Pension Fund Manager and see your money grow

It is portable-You can operate your account from anywhere in the country, even if you change your city, job or your Pension Fund Manager

It is regulated -NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of Fund Managers by NPS Trust

Reasonable market based returns -over the long term Tax benefits -Contribution towards NPS exempted under Section 80C Low cost investment - Cost effective mode of planning for one's retirement

The NPS offers you two approaches to invest your money: Active choice {Individual Funds (Asset Class E, Asset Class C, and Asset Class G)} Auto Choice

Source: http://www.hdfcpension.com/faq.html

Public Provident Fund (PPF)Some Features and benefits of PPF:

From 1.4.2014, interest rates are as follows:- 8.70% per annum (compounded yearly).

Minimum deposit amount INR. 500/- and Maximum deposit amount INR. 1,50,000/- in a financial year.

Deposits can be made in lump-sum or in 12 installments every year.

An individual can open account with INR 100/- but has to deposit minimum of INR 500/- in a financial year and maximum INR 1,50,000/- 

Maturity period is 15 years but the same can be extended within one year of maturity for further 5 years and so on. 

Premature closure is not allowed before 15 years.

Deposits qualify for deduction from income under Sec. 80C of IT Act.

Withdrawal is permissible every year from 7th financial year from the year of opening account

Loan facility available from 3rd financial year.

Source: http://www.indiapost.gov.in/ppf.aspx

Equity Mutual Funds (EMFs)Some Features and benefits of EMFs:

Equity Mutual Funds invest in the diversified portfolio of large cap, mid cap and small cap companies.

For long term horizon this scheme is always advisable because the return is high if invested in a systematic manner.

But for short term period, this plan is not advisable as the risk is high and return is very low depending on the market scenario.

Investment up to 1 year is subject to short term capital gains tax and beyond 1 year is tax free under long term capital gains tax.

However, ELSS is a better option for investors who want to invest in equity as it gives tax rebate as well as good returns in the same financial year.

Source: http://www.rediff.com/getahead/2005/sep/01sip.htm

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Fund 8 years 9 years 10 years

Franklin India Prima 23.83 30.38 35.78

HDFC Equity 25.17 29.09 33.22

Franklin India Bluechip 23.79 29.66 31.43

Franklin India Prima Plus 21.94 27.26 30.22

Birla Advantage 17.27 21.59 26.16

Prudential ICICI Power 13.14 18.86 23.86

Illustration with an exampleAn Investor, Ravi Acharya, in his 30’s is planning for his retirement. He has invested in NPS, PPF & EMFs a lump sum of INR. 5,00,000/- investible surplus.

As risk appetite decreases with increase in age. So dependency on fixed income(annuity) increases, that is tax-free and more secure.

Take for instance, by the time he reaches 45 years of age, his portfolio ought to reflect :

I. 40% of his total investment in Equity mutual funds that was 50% when he was 30 years of age

II. 20% in PPF that was 15% previously &

III. another 40% in NPS that was 35% previously.

NPSTime Horizon G class

20%

50%

80%

E class50%

30%

10%

C class30%

20%

10%

25-35 years

35-45 years

45-55 years

Source: http://ssaravanan-vvu.blogspot.in/2013/07/brief-on-new-pension-scheme-nps.html

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PPF

25-35 years

35-45 years

45-55 years

Investment in PPF should increase over

time20%

40%

50%

Time Horizon

EMF

25-35 years

35-45 years

45-55 years

Investment in EMF should decrease over

time

50%

40%

20%

Time Horizon

Comparison between NPS, PPF & EMFNPS PPF ELSS

Market Linkage Market Linked No market linkage Market Linked

Lock-in Period Up to 60 years 15 years 3 years

Capital Protection No capital protection

Capital is protected No capital protection

Professionally managed

Affirmative Affirmative Affirmative

Tax provision EET EEE EEE

Returns Moderate Minimum Maximum

Fund Management Cost

0.0102% for government

employees, 0.25% of the invested amount

for investor

No fund management cost

involved

0-1.25%

SchemesParameter

s

Conclusion

45-55 years

• PPF (60% or 80%)

• NPS (20%)• EMF (10%-

20% or nil)

35-45 years

• NPS (30%)• EMF (40%)• PPF (30)

25-35 years

• EMF (50%)• NPS (30%)• PPF (20%)

For, “Moneywise, one’s ought to be

Wise!”

As retirement is a crucial stage, its planning & implementation in a diversified portfolio is a given.

As all the schemes have their pros and cons, all we can do is, take the maximum out of the pros and minimum of the cons, in order to avail the

maximum out of the opportunity at hand.So, when the time horizon is more, a major portion should be invested in

equity as the yield will be larger than any other fund available.With the passage of time & age, investment in equity has to be thinned down and a proper mix of investment in equity mutual fund, NPS & PPF ought to

be considered as stated below :

Thank You…