I am a 61-year-old retired govt employee and have closed my PPF and NPS accounts. Can I reopen both after retirement?

I am a 61-year-old retired government servant. After retirement last year, I closed my Public Provident Fund (PPF), and National Pension System (NPS) accounts as my balance in NPS was below Rs 5 lakh. I have started working again as a consultant with a decent monthly income. Can I open new PPF and NPS accounts and invest in these schemes?  

Rajat  

Reply by Rajiv Bajaj, Chairman & MD, BajajCapital Ltd 

You can open new PPF and NPS accounts and start contributing at your convenience. Note that in a PPF account, you can’t invest more than Rs 1.5 lakh in a year. However, there is no restriction in NPS Account where you may deposit any amount at your convenience. But, the tax deduction will be restricted to Rs 50,000 only under section 80CCD (1B) of the Income Tax Act. Also, note that you will be required to deposit some amount every year in your PPF Account for the next 15 years; after that, you may close the account or extend it further for 5 years.

In your NPS account, you have to subscribe to some amount every year for at least three years before you can opt for exiting and starting your annuity (pension). We recommend that you continue to invest in NPS every year for seven–eight years and exit only then and commence your pension. Also, so that you know, you may exit any time before completing 75 years of age.

NPS is a central government scheme that provides retirement security to citizens of India. The scheme helps you build a long-term investment corpus for your retirement. The scheme offers regulated market-based returns. Thus, residents or non-residents (NRIs) of 18-70 years can open an account in NPS.

The scheme comes with several benefits. For instance, it is a cost-effective investment for an individual to make pension contributions in pension fund schemes. Typically, the investment norms are transparent, and the NPS trust does a regular performance review of fund managers. The avenue cannot help you avail loan facility against NPS holdings. The return from the NPS scheme varies as per the fund choice made by an investor. For instance, NPS scheme equity schemes have delivered 11-12% returns since inception. Corporate and government schemes have delivered 8-9% returns.

On the other hand, the PPF scheme helps you get a guaranteed return. Currently, you can avail interest rate of 7.1 per cent. Investments in PPF offer you the benefit of triple tax exemptions - exempt-exempt-exempt (EEE) status. This means you get tax benefits when you invest, on accrual, and when you withdraw your hard-earned money.

(Views expressed by the investment expert are his/her own)

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