When you think about saving money for the future, several options are available. Two of India’s most popular retirement-saving schemes are the National Pension Scheme (NPS) and the Public Provident Fund (PPF). In this blog, we will discuss NPS vs PPF based on their characteristics, benefits, and limitations to help you decide which suits you better.
National Pensions Scheme (NPS)
The National Pension Scheme was launched in 2004 to provide retirement benefits to Indian citizens and is sponsored by the government. It comes under the Pension Fund Regulatory and Development Authority (PFRDA). All Indian citizens between 18 and 60 who are employees from public, private, or unorganized sectors can apply for this scheme.
The scheme offers two types of accounts – Tier I and Tier II. Tier I is a mandatory account for anyone who wishes to join the NPS scheme. The money invested in this account is locked in until the age of 60. It can only be withdrawn under certain conditions, such as medical emergencies, disability, or death. Tier II is a voluntary account allowing investors to withdraw their money anytime, without any restrictions.
The interest rate is linked to the market; thus, there is potential for earning higher returns; however, volatility is also present. The scheme allows you to choose between equity funds, government securities funds, fixed-income instruments, and other government securities.
Those willing to invest in NPS must note that the following Pension Funds are registered under this retirement scheme:
- SBI Pension Funds Pvt. Ltd.
- LIC Pension Fund Ltd.
- UTI Retirement Solutions Ltd.
- HDFC Pension Management Co. Ltd.
- ICICI Prudential Pension Fund Management Co. Ltd.
- Kotak Mahindra Pension Fund Ltd.
- Aditya Birla Sunlife Pension Management Ltd.
- Tata Pension Management Ltd.
- Max Life Pension Fund Management Ltd.
- Axis Pension Fund Management Ltd.
Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a long-term investment scheme introduced by the Indian government in 1968. It holds the reputation of being one of the safest and most popular investment options in India, as it offers tax benefits and guaranteed returns. It is open to all Indian citizens and has a minimum investment amount of Rs. 500 and a maximum of Rs. 1.5 lakhs yearly.
The money invested in a PPF account has a lock-in period of 15 years, which can be extended in blocks of 5 years after the completion of the initial lock-in period. The interest rate is reviewed every quarter and is currently at 7.10% per annum.
All Indian citizens can open a Public Provident Fund account in their own name or on behalf of a minor. However, it is unavailable to Hindu Undivided Families (HUFs) or Non-Resident Indians (NRIs). In the case of the latter, if an Indian citizen has recently become an NRI, then they can continue holding their existing account till the maturity period.
Here is a list of some commonly known banks offering PPF accounts:
- Allahabad Bank
- Corporation Bank
- Bank of Baroda
- HDFC Bank
- ICICI Bank
- Axis Bank
- Kotak Mahindra Bank
- State Bank of India and its subsidiaries:
- State Bank of Travancore
- State Bank of Bikaner and Jaipur
- State Bank of Hyderabad
- State Bank of Patiala
- State Bank of Mysore
- Canara Bank
- Bank of India
- Union Bank of India
- Oriental Bank of India
- Central Bank of India
- Bank of Maharashtra
- Dena Bank
- Syndicate Bank
- United Bank of India
- Indian Overseas Bank
- Vijaya Bank
- IDBI Bank
- Andhra Bank
- Punjab National Bank
- UCO Bank
- Punjab and Sind Bank
If you have a savings account with another bank not enlisted above, you can check with them to find out whether they offer to open a PPF account. While some banks allow you to open the account online or offline, others require you to file the application in person.
NPS vs PPF – What are the differences?
|Eligibility||Anyone between the age of 18 and 60 years.||Anyone except HUFs and NRIs.|
|Maturity||The period of investment is till superannuation or 60 years of age, with exceptions.||The period of investment is 15 years. It can be extended by a block of five years with/without making a further contribution.|
|Min/Max amount||The minimum investment is Rs.1000 per annum. There is no upper limit on investment for salaried employees; however, for self-employed, the maximum amount should not be greater than 20% of their gross total annual income.||The minimum yearly investment amount is Rs.500, while the maximum is Rs.1.5 lakh per annum.|
|Rate of Interest||Since it is a market-linked product, the rate of interest varies, but it usually ranges from 12% to 14%.||It has an interest rate fixed by the government, which is currently fixed at 7.10%.|
|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, but there are restrictions.||Account holders can withdraw money early and partially in certain situations after ten years. To exit before retirement, however, one must purchase a life insurance annuity using at least 80% of the accumulated corpus.|
|Income Tax Benefits||Rs.2 lakh worth of tax benefits are available under the National Pension Scheme – up to Rs.1.5 lakh is available under Section 80CCD(1), and an additional Rs.50,000 under Section 80CCD(2) of the Income Tax Act.||All deposits made towards the Public Provident Fund are deductible under Section 80C of the Income Tax Act. Moreover, the accumulated amount and interest are also tax exempt at the time of withdrawal.|
While both are excellent options, what suits an individual more can be decided based on their risk appetite, expectations from returns and liquidity, and taxation benefits.
Q1. Can you invest in both NPS and PPF?
A1. Yes! If you wish to save more for your retirement, you can invest in both schemes.
Q2. When can you exit from NPS?
A2. Subscribers can exit from the National Pension Scheme and start pension anytime during the period of continuation.
Q3. Which is better – PPF or FD?
A3. Tax-saving FDs have a lock-in period of 5 years, which is much lesser than 15 years in PPF. However, FDs carry some risk and the interest earned is also taxable; thus, if 15 years lock-in is not a concern, then you should invest in Public Provident Fund.