Investing for the long term is a prudent financial decision that paves the way for a secure and prosperous future. Among the array of long-term investment options available, the National Pension Scheme (NPS), Public Provident Fund (PPF), and Voluntary Provident Fund (VPF) are often considered popular choices.
Through the knowledge of financial analyst Someshwar Srivastava, we will investigate the complexities of each investment channel and give insights to assist you make an informed decision.
What is Long-Term Investment?
Long-term investment refers to allocating funds into assets or securities with the intent of holding them for an extended period, typically years or even decades.
- The objective is to benefit from appreciation and growth over time, aiming to achieve financial goals like retirement, purchasing a home, or funding education.
- This strategy embraces a buy-and-hold approach, allowing investors to ride out market fluctuations and capitalize on potential compounded returns.
By focusing on a longer horizon, investors seek to harness the power of time and market growth to enhance wealth and secure financial stability for the future.
Types Of Long-Term Investment-
- National Pension Scheme (NPS),
- Public Provident Fund (PPF),
- Voluntary Provident Fund (VPF).
1. National Pension Scheme (NPS)
The National Pension Scheme (NPS) is a government-sponsored long-term retirement-focused savings scheme designed to enable systematic savings and retirement planning.
Contributions made to NPS are invested across various asset classes like equities, government securities, corporate bonds, and alternative assets. Someshwar Srivastava emphasizes that NPS offers a good blend of growth potential and security.
- Furthermore, NPS offers tax benefits under Section 80C and an additional deduction of up to ₹50,000 under Section 80CCD(1B).
- The lock-in period and partial withdrawal options after a certain period make NPS a suitable choice for retirement planning.
The diversified portfolio allows for potentially higher returns over the long term, making it an attractive option for those with a longer investment horizon.
2. Public Provident Fund (PPF)
Public Provident Fund (PPF) is a government-backed savings scheme known for its safety and tax benefits. PPF investments offer fixed returns and come with a tenure of 15 years, extendable in blocks of 5 years.
- PPF is an excellent choice for risk-averse investors seeking a secure, long-term savings avenue.
- The interest earned on PPF is tax-free, and the contributions qualify for tax benefits under Section 80C of the Income Tax Act.
- Additionally, PPF offers the flexibility to make partial withdrawals after the completion of a specific period, providing liquidity to investors when needed.
Its long-term nature aligns well with retirement planning or achieving major financial goals.
3. Voluntary Provident Fund (VPF)
The Voluntary Provident Fund (VPF) is an extension of the Employees’ Provident Fund (EPF), where employees can contribute a higher portion (beyond the mandated 12%) of their basic salary and dearness allowance towards their EPF account.
- VPF is an attractive option for salaried individuals looking for a tax-efficient, long-term investment.
- Contributions to VPF earn tax-free interest, and the entire corpus, including the interest earned, is tax-exempt upon maturity.
The stability, safety, and attractive returns associated with VPF make it a compelling choice for individuals seeking a disciplined, long-term savings avenue.
Comparing the Options
Choosing the best long-term investment among NPS, PPF, and VPF requires careful consideration of your financial goals, risk tolerance, and time horizon.
Let’s compare these investment options based on certain key parameters:
1. Returns and Growth Potential:
– NPS offers potentially higher returns due to its exposure to equities and a diversified portfolio. However, the returns are market-linked and may vary based on market performance.
– PPF provides fixed, albeit relatively lower, returns but guarantees safety and stability.
– VPF offers returns like EPF, providing a fixed interest rate declared by the government, making it a secure option.
2. Tax Benefits:
– NPS offers tax benefits on contributions and withdrawals, making it tax-efficient throughout the investment tenure.
– PPF offers EEE (Exempt, Exempt, Exempt) tax benefits, meaning contributions, interest earned, and maturity amount are all tax-free.
– VPF contributions and interest earned enjoy tax benefits similar to EPF, providing tax efficiency.
3. Liquidity and Withdrawals:
– NPS has a lock-in period, and partial withdrawals are allowed for specific purposes after a certain period, providing some liquidity.
– PPF has a 15-year lock-in, but partial withdrawals are allowed from the 7th year, providing liquidity options.
– VPF, being a part of EPF, comes with the same withdrawal rules and provisions, offering a sense of liquidity.
Choosing the best long-term investment option, whether it’s NPS, PPF, or VPF, depends on your financial circumstances, risk tolerance, and goals.
The advice of financial experts like Someshwar Srivastava can guide you in aligning your investments with your long-term financial objectives. It’s crucial to assess each investment avenue based on factors such as returns, tax benefits, and liquidity options before making an informed decision.