NPS vs PPF vs ELSS . The Order Matters More Than The Rate

Friend rang up on a chai call this evening. Fresh financial year just started. Old questionnaire from his CA in front of him.

"NPS or PPF or ELSS. Which one."

I told him that was the wrong question. The three are not competitors on a shelf. They are three different lock-ins doing three completely different jobs. NPS locks the money till age 60 and blends equity and debt at roughly 9.5 pct, but only 60 pct of the corpus comes out tax-free, the other 40 pct must annuitize at slab rates. PPF locks 15 years at 7.1 pct, but it is EEE end to end, every rupee at maturity is tax-free. ELSS locks just 3 years per SIP at 12 pct gross, but you pay 12.5 pct LTCG on gains above the Rs 1.25 lakh annual exemption.

Run it on Rs 1.5 lakh a year for 20 years and the numbers land in a surprising order. NPS accumulates Rs 81.1 lakh, of which Rs 48.7 L is tax-free lump and Rs 32.4 L pays out as a roughly Rs 16200 monthly annuity taxed at your slab. PPF lands at Rs 62.2 lakh, fully tax-free. ELSS lands at Rs 94.2 lakh post LTCG and stays liquid the whole way.

What the table actually teaches is that the Rs 50000 NPS slot under Section 80CCD(1B) sits on top of the 80C ceiling. It does not compete with PPF or ELSS or EPF. At a 30 pct slab it pays Rs 15600 in saved tax the day the SIP debits, which means a rate-led picker leaves Rs 15600 a year on the table. After that, ELSS for growth and the shortest lock-in, PPF for tax-free fixed-income exposure, NPS for the retirement bucket your behaviour will not touch. The order is the product.

Honest version. Stack the deductions in the order that makes your slab pay you, not the brochure