PPF vs SIP vs NPS: Which is better investment option in your 20s?

It is easier to make a big corpus if you start financial planning early. This allows investors to take more risks and get better returns. As people grow older, they often move to safer investment options. The problem is that most people in their 20s are not sure about the schemes where they should park their hard-earned money. Also, there is often confusion about how much money should be invested in which financial instruments. Some of the attractive investment options for youngsters are: Public Provident Fund (PPF), Systematic Investment Plans (SIP) or National Pension System (NPS).

All the schemes come with different lock-in period, have different features and give varied returns. While PPF and NPS provide a sense of security, they come with longer investment period. SIPs, on the other hand, are a way to get mutual fund exposure. The advantage here is the higher return and better liquidity. 

Mumbai-based investment and tax expert Balwant Jain told Zee Business Online that young people should invest more in SIPs, as they are market-based, which help investors make big corpus. "They should invest a major portion of their money in market-based instruments. Besides SIPs, these investors can also invest in NPS as a long-term plan. NPS invests 50 percent of the fund in equities and 50 percent in government bonds and other secured venues, so there are chances to accumulate more fund in retirement," Jain said.

"They should adopt the hundred minus age formula for investment. For example, if a person in 20s has Rs 100 available for investment and age is 25, the person should invest 75 percent of the total amount to high-return investment option like SIPs. Rest of the money can be invested in NPS and PPF," he said. Even though PPF gives less return when compared to the two other instruments, it is the most secured investment option. 

Besides that, everybody should invest some money to meet short-term requirements. For this, they can put money in bank recurring accounts or short-term debt mutual funds. Jitendra Solanki, a SEB-registered investment expert, told Zee Business Online that longer horizon allows youngsters to take more risks. "NPS is only for the retirement purpose. If you want to accumulate big corpus then equity mutual fund SIPs are the best option. Young people can take more risk, as they have a longer period ahead to create a large sum. Ideally, they should invest 75 percent of their money available for investment and rest of the sum in other instruments like NPS and PPF," he said. 

However, risk appetite, financial conditions, and income vary from person to person, so they have to take a call according to their situation. One may take advise from the investment experts if not sure about the investment plan. Reviewing investment after a certain interval is also very important, Solanki said.