National Pension System vs Public Provident Fund – Which scheme works for your retirement plans?

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When it comes to finding a secure and reliable way to grow your wealth over long term, parking your money with government-backed instruments can be considered a safe option. National Pension System (NPS) and Public Provident Fund (PPF) are two such investment schemes that are backed by the government in some ways.

Before deciding on which one to select for retirement planning, it is essential to know the key features of, and differences between NPS and PPF.

Eligibility criteria

PPF is a provident fund scheme that is only for Indian residents. You can start investing any time (even minors can do it with a guardian) and continue to do it without any age restriction. You can have only one account in your name and joint accounts for PPF aren’t allowed.

For NPS, subscribers in the age bracket of 18 to 65can invest in NPS. Even NRIs are eligible to invest in this scheme if they have their PAN, an Indian bank account and meet the conditions laid down by the Pension Fund Regulatory and Development Authority.

Investment period

The investment period forPPF is set at 15 years, which you can extend in blocks of 5 years after completing the original 15 years.

NPS has a mandatory investment tenure till 60 years or superannuation for its Tier I account. You can further extend it till the age of 70. For Tier II NPS accounts, there is no such lock-in period.


PPF is a government-backed instrument with assured returns over a set period. Therefore, if you are a risk-averse investor, PPF isamong thesafest ways to invest your money.

In comparison, NPS is a market-linked instrument. So, even though it is regulated by a government entity, returns are not assured. In other words, it is not as safe as PPF when it comes to safety of the principal amount.


The returns on your PPF account are based on a rate decided by the government. The returns are subject to a revision every financial year. The rate of interest for 2021-22 is 7.1%.

The returns on your NPS investment are linked with the returns in the stock market, corporate bonds, and government securities. Based on your allocations at the time of investment, the annual returns that you can get vary. Based on an analysis of weekly update reports shared by the NPS Trust, annual returns can range between 8% and 12%.

Investment amount

You need to invest a minimum of Rs. 500every year in your PPF account to keep it active. There is a ceiling on maximum investment at Rs. 1.5 Lakh in a financial year.

For NPS, the minimum investment is Rs. 1,000 in a financial year for Tier I NPS accounts, with no upper limit of investment for salaried individuals.

Tax benefits

By investing in PPF, you can claim a deduction of up to Rs. 1.5 Lakh in a financial year under Section 80C of IT Act. The interest earned is also tax-free under Section 10.

With NPS, you can get a deduction benefit of Rs. 1.5 Lakh under Section 80C and an additional Rs. 50,000 under section 80CCD (1B) in a financial year. For self-employed investors, the maximum permissible investment is 20% of their gross annual income. On maturity, 60% of the corpus can be withdrawn free of tax, while the remaining 40% needs to be invested in an annuity product. The income from the annuity is taxable as per slab-rate.

Premature withdrawal

Premature withdrawal is available under PPF after the completion of five years against certain conditions.

With your NPS account, you gain access to premature withdrawal facility after the third year of investment limited to 25% of the fund value. This facility is available under special circumstances.

Which investment option to choose?

Be it PPF or NPS, your main objective is to grow your wealth for a financially independent life post-retirement. Other than these two instruments, there are multiple avenues where you can park your savings and see them grow over long term.

Exploring options like mutual funds and stocks with the help of a financial expert could help you to create and grow your wealth based on your age, financial goals and appetite for risks.

Reach out to one today!



David Cohen

Rachel Cohen: Rachel is a sustainability consultant who blogs about corporate social responsibility and sustainable business practices.

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