PPF and NPS are both Central Govt. investment schemes. But investing, it is a constant dilemma about PPF vs NPS, which is a better investment.
Let’s evaluate NPS Vs PPF which one is better.
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PPF Vs NPS – Which is better for Investment?
Before knowing which one is better for retirement? Let’s first know a bit about both the products.
What is PPF?
Public Provident Fund (PPF) is a long-term investment scheme offered by Central Government of India to encourage savings among people.
It is a risk-free tax-saving investment option that offers an attractive rate of interest and has a lock-in period of 15 years.
The PPF account can be opened at any post office or designated bank branch in India.
The minimum investment amount is Rs. 500, and the maximum investment limit is Rs. 1.5 lakh every financial year.
One can deposit money as lump sum or in installments of up to 12 times in a year.
The interest rate on PPF is decided by the government and is revised every quarter.
The interest earned on the PPF account is tax-free.
PPF account matures after 15 years. After completion of 15 years PPF can be extended in blocks of 5 years.
PPF is considered as one of the safest investment options in India, and it also qualifies for tax benefits under Section 80C of the Income Tax Act. PPF account holders can also avail of loans and partial withdrawals after a specified period.
Read more about PPF
Public Provident Fund (PPF)-Features And Benefits || PPF Account Benefits 2022
Public Provident Fund (PPF) Withdrawal Rules 2020
PPF Extension Rules- Can I Extend PPF Account After Maturity?
PPF Vs Mutual Fund -Which One Is Better (Detailed Comparison)
Top 10 PPF Account Benefits-You Must KNOW
What is NPS?
NPS or National pension Scheme is a Central Govt. Of India Retirement scheme.
NPS matures at the age 60, but it can be extended and contribution can be given till age 70 years.
Here, One has to compulsorily contribute a minimum Rs 6000 to continue the account.
The maximum Contribution is 2 lac in a Financial year.
One may receive the proceeds of an NPS maturity in a lump payment upon retirement, with at least 40% of the proceeds going towards the purchase of an annuity.
Read More about NPS
National Pension Scheme(NPS)- All You Need To Know From Entry To Exit Rules
Latest NPS Withdrawal Rules 2022- Govt. & Corporates
How To Choose The Best NPS Fund Manager
Basic Difference between PPF and NPS
| Feature | PPF | NPS |
| Who can invest? | Any Indian Citizen can invest. One can also invest in minor name | Any Indian/NRI above age 18 and less than 60 can open the account |
| NRI Investment | NA | NRI can invest in NPS |
| Minimum Contribution in a Financial Year | Minimum Rs 500 | Minimum Rs 6000 |
| Maximum Contribution in a Financial Year | Maximum Rs 1.5 lac | There is no maximum limit but should not exceed 10% of basic and DA or 10% of gross total income or upto 2 lac |
| Maturity period | PPF account matures in 15 years. It can be extended for 5 year period with or without making future contribution | No fixed maturity date.One can contribute till age 60, but NPS contribution can be extended till age 70 years. |
Also Read: Latest Post Office Interest Rates July -Sep 2022
PPF and NPS -Type of Scheme
| Feature | PPF | NPS |
| Interest Rate | Current 7.1%Interest rate is guaranteed but changes as per RBI notifications | Market linked return |
| Safety | Safe | Returns are variable |
| Return Expectation one can take from the product | 7%-9% | 7%-12% |
| Pension | No pension is provided. After maturity, entire amount can be withdrawn | Compulsory buy Annuity/ pension plan from life insurance company ( From 40% amount). One can withdraw rest 60% |
Tax Benefit
| Feature | PPF | NPS |
| Tax benefit U/S 80 C | The amount of 1.5 lac get tax deduction U/S 80 C | The amount of 1.5 lac get tax deduction U/S 80 CCD(1) Additional 50000 tax deduction U/S 80CCD ( 1B) One can get 2 lac deduction under NPS |
| Maturity Taxation | The entire amount is tax free in nature. | 20% corpus amount is taxable in nature |
Premature Withdrawal
Premature closure and withdrawal is important from an investor point of view. However, the closure of NPS or PPF is not possible in between.
However, Premature withdrawal is permitted under special circumstances.
| Feature | PPF | NPS |
| Premature Withdrawal | After the seventh year, partial withdrawals are permitted with some restrictions. Loans are possible between the third and sixth fiscal years following account opening, although there are restrictions. | Account holders can withdraw money early and partially in certain situations after ten years. However, in order to leave the market before retirement, at least 80% of the earned corpus must be used to purchase a life insurance annuity. |
| Can I choose where to invest | No | Yes, One can choose from the 4 options equity, Corporate bonds, Govt. securities and alternative investments |
PPF and NPS Interest rate
| Feature | PPF | NPS |
| Interest Rate | The current rate is 7.1% | Interest rate is not fixed. Since NPS is a market linked product the interest is variable in nature. |
| What you can expect | PPF interest rate is guaranteed but changes time to time as per RBI guidelines. | Since NPS is a market linked product, one can expect higher return than PPF |
FAQ
Can we take NPS and PPF Both?
Investment in both NPS and PPF is possible. One can invest in PPF for fixed returns and simultaneous
investment in NPS for market linked returns.
Can I invest 1.5 lac in PPF and 50K in NPS?
Yes, one can claim a deduction of 1.5 lac U/S 80C in PPF and can make additional investment of 50K in NPS and claim a deduction U/S 80CCD(1B).
PPF Vs NPS- which is a better option for retirement?
PPF and NPS both provide a fair amount of safety. PPF provides safe returns whereas NPS provides market linked variable returns. Which one will be better for retirement depends on personal risk appetite and financial circumstances and retirement goals.
Conclusion
PPF is a good choice for risk averse investors since it provides safe and secure return for a long duration. One can link various life goal such as Retirement, kids education, wedding or other with PPF.
Whereas NPS is a purely retirement scheme with market linked returns. One has to compulsorily invest till retirement. Since it is a market linked product one can expect a higher return than PPF. Additionally You can save additional tax deduction for Rs 50K apart from 1.5 lac deduction U/S 80 C.
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