Differences between PPF and NPS

Are you a first-time investor? Or do you need to refresh your understanding of investment products? Confused about which investment to choose between the National Pension Scheme (NPS) and the Public Provident Fund (PPF)?

Well, for starters, making wise investment choices can be quite a challenge. Let us help you clear your doubts about NPS and PPF.

Features:

As an investor, you are bound to wonder about the critical differences between NPS and PPF since both schemes are Government-sponsored investment vehicles. The real question is, which is more suited to your financial portfolio?

Let’s begin by exploring their features. The  NPS scheme is a government-backed social security initiative designed to be an effective retirement and investment tool. Any citizen of India between 18-60 years of age is eligible for opening an NPS account. The Indian government introduced these schemes with a long-term horizon in mind. Both are relatively less risky; however, the returns on PPF are entirely tax exempted.

Differences:

What are the critical differences between PPF and NPS? The primary difference between the two is in terms of how they function. One has to contribute a minimum of Rs 6,000 annually or Rs 250 depending on their account.After retirement, a part of the sum, about 60% can be withdrawn. The remaining 40% must be used to purchase an annuity and to secure a regular post-retirement income. In contrast, the lock-in period for PPF is 15 years, and there is no specification regarding the use of the maturity amount. You can easily invest this amount in other financial products.

In terms of tax-saving opportunities, PPF serves as an excellent tax-saving investment as it offers a tax deduction, there’s no tax on interest earned, and the maturity amount is tax-free. PPF deposits offer tax exemption under Section 80C of the Income Tax Act. For NPS, a total tax benefit of up to Rs 2 lakh is allowed under Section 80CCD (1) and Section 80CCD (2).

Another difference between NPS and PPF is that, unlike the case of PPF, NRIs are eligible to invest in the NPS scheme. Also, PPF has a cap of Rs 1.5 lakh on the annual contribution, which can be made through not more than 12 yearly deposits. For NPS, the total contribution cannot exceed 10% for the salaried, and for self-employed personnel, it cannot exceed 20% of the total gross income.

Another main difference between PPF and NPS is that for PPF, the interest rate is set by the government and for NPS the returns are market-linked. Now that you know the differences between the two schemes, it’s time to invest as per your financial goals!

Open your NPS account here now!

Know more about the difference between NPS vs ELSS here.

​​​​​​​*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.