NPS (National Pension Scheme) and PPF (Public Provident Fund) are two of the most popular government-backed retirement savings schemes in India. The objective of both schemes is to secure your post-retirement life by allowing you to create a stable income source. Like mutual funds online, NPS is a market-linked pension savings scheme that allows you to earn market-based returns and create a retirement corpus. Alternatively, PPF is a non-market linked scheme that generates fixed returns, securing your retirement. Both the schemes offer tax advantages under Section 80C.
Read on to understand the difference between NPS and PPF and which scheme is best for retirement:
| Basis of Difference | NPS | PPF |
| Who can contribute? | Any Indian citizen between 18 and 60 years can open an NPS account. | Any Indian resident, irrespective of age, can open a PPF account. You can also open a PPF account for your minor children to get tax benefits. |
| NRI investors | NRIs can invest in an NPS. | NRIs are not allowed to invest in PPF. |
| Return | NPS offers market-linked returns according to the performance of your underlying portfolio investments. | PPF offers an assured return according to floating interest rates, currently at 7.1%. |
| Risk | The scheme is regulated by the government, but the returns are subject to the market’s risk of volatility. | The scheme is regulated by the government and offers assured returns without any risk of market volatility. |
| Maturity period | There is no fixed maturity period. You can contribute to your NPS account until 60 years, extendable up to 70 years. | A PPF account has a fixed maturity period of 15 years. You can extend this period by another five years with or without making any further contribution. |
| Minimum and maximum investment | The minimum contribution limit for NPS is Rs. 6,000. There is no upper contribution limit as long as the sum does not exceed 10% of your salary or 10% of your gross income if you are self-employed. | The minimum contribution limit for PPF is Rs. 500 annually. The maximum contribution is Rs. 1.5 lakh. A maximum of 12 contributions are allowed per year. |
| Tax benefits | Like for certain mutual funds online, NPS deposits up to Rs. 1.5 lakh are tax-exempt under Section 80CCD (1) of the Income Tax Act, 1961. You can get an additional Rs. 50,000 tax deduction under Section 80CCD (2). | PPF deposits get tax benefits under Section 80C. Further, the accumulated amount and interest are also tax-free at the time of maturity. |
| Premature withdrawals | You can make partial withdrawals from the NPS account after ten years, subject to specific circumstances. However, at the time of retirement, you should provide at least 40% of the accumulated fund to buy a life insurance annuity to get regular income during retirement. Thus, you can withdraw 60% of the money. | You can make partial withdrawals after seven years with some restrictions. You can also take loans in the third and sixth year of opening the account, subject to some conditions. |
Conclusion
Both NPS and PPF have unique features and advantages. If you want high returns with no lock-in period, consider NPS. If you want assured retirement income, choose PPF. Alternatively, you could benefit from investing in mutual funds online through the SIP (Systematic Investment Plan) mode. Mutual funds online have a minimum lock-in period of five years and enable you to invest in securities as per your risk tolerance while generating high returns.
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