NPS vs PPF

 NPS vs PPF which is better option for investing?

Start Investing Early to generate good wealth

National Pension Scheme(NPS) and Public Provident Fund(PPF) both are government backed retirement saving investment scheme. Both the schemes encourage you to regularly save funds to secure your post retirement life.

If you are in dilemma what to choose then you will find information on both to help you to plan your investments better.

Public Provident Fund Scheme (PPF)

PPF is government popular scheme, for good returns one need to stay invested for 15 years. You can close earlier PPF account but you  have an active account for at least 5 years.

Premature closing of PPF account is allowed in the following circumstances:

• paying for one's higher education or
• for medical expenses( in case of life threatening diseases supporting by documents  from medical practitioner

Things you should know before opening a PPF Account:

1. The current interest rate of PPF Account is 7.1% p.a. which is credited on 31st March of every year.
2. You should invest between 1st to 5th of every month to get the benefit of maximum interest because interest is calculated lowest amount held. (i.e amount held on 5th )
3. You can even take a loan from PPF account if you hold for 3 years and if you pay before completing the 6th year then you eligible for another loan as well.

Who can invest in PPF?

An Indian citizen  can open PPF Account. One person can only have one account unless second account in the name of minor. NRIs and HUF are not eligible to open the PPF Account.

National Pension Scheme(NPS)

Now we understand the basics of PPF now let us look at NPS as well. NPS is government pension scheme for employees of private sectors, public sectors and unorganised sectors (except for armed forces) .

In NPS the account holders can invest regularly in a pension account through the tenure of their employment. Once they retire, the account holders can use a certain percentage of the corpus as 

a lump sum and use the rest as a pension.

Under NPS you can choose between two types of accounts: Tier I and Tier II.

The Tier I is non withdrawable till the age of 60 except for in specific situations while Tier II is voluntary savings account. Subscribers to Tier II account can withdraw their money whenever they want.

Key Differences between NPS and PPF

S.No	Features	PPF	NPS
1	Eligibility	An Indian Resident and can be opened in the name of minor children to avail the tax benefits	An Indian citizen above 18 years and less than 60 years of age
2	Are NRIs eligible for this scheme?	No	Yes
3	Maturity Period	PPF Account matures in 15 years and can also extend for block of 5 year with further contribution or not	You can contribute upto 60 years of age and extend to 70 years of age
4	Investment Limit	Minimum Rs. 500 and maximum Rs. 150000 per financial year	Minimum Rs. 1000
5	Taxability	All deposits are deductible under section 80 C of the Income Tax Act	Tax benefit is available only on Rs.1.5 lakh under Section 80CCD(1) of the Income Tax Act, and an additional Rs.50,000 under Section 80CCD(2) – a total of up to Rs.2 lakh
6	Can I choose How to invest my money	No	Yes you can choose government securities, equity funds  and fixed income instruments
7	Returns	Interest rates are decided by the Government	Returns are linked to the market therefore potential returns are higher
8	Withdrawal	Partial withdrawal allowed from 7th year onwards with some conditions	After 10 years, early or partial withdrawal is allowed. If individual choose exit before retirement then he needs to buy annuity from  80% of the accumulated corpus

Is NPS is better than PPF?

From the above mentioned pointers it is clear that both investment tools have pros and cons. 

PPF generates fixed returns on the fixed income category whereas equity pension funds under NPS provide higher returns in the long run. 

Investing in NPS will enable you to create a tax-efficient retirement corpus if you belong to a higher tax bracket.

In case you have less than 15 years left until your retirement, PPF investment might not be a viable option for you. However,  NPS can still help you create a retirement corpus to secure your finances.

Depending on the type and purpose of the investment and the risk taking capability of an investor, one can choose any one of the above investment tool.

You can open the PPF Account through Bank online or offline as well.

To open the NPS Account click on the below link:

Open NPS Account

For subsequent contribution in NPS Account click on the below link:

Subsequent Contribution

CS Shweta Jain

Certified Mutual Fund Advisor