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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
When comparing PPF and NPS, NPS offers higher returns with moderate risk, while PPF provides guaranteed, risk-free returns. The best investment choice depends on your risk appetite, financial goals, and retirement planning needs.
When it comes to planning for the future, especially for retirement, two of the most popular investment options in India are the National Pension System (NPS) and the Public Provident Fund (PPF). Both are government-backed and offer a relatively safe and steady way to build wealth over time. But how do you decide which is better NPS or PPF?
The National Pension System (NPS) is a government-sponsored pension scheme launched by the Government of India in 2004. It is designed to provide retirement income to individuals, ensuring financial security during old age. NPS operates on a defined contribution basis, where the amount contributed by the subscriber and the returns generated from the investment determine the pension amount.
Any Indian citizen between 18 and 70 can open a National Pension System (NPS) account. To get started, the individual must comply with Know Your Customer (KYC) requirements, which include providing essential identification and address documents to verify their identity.
The Public Provident Fund (PPF) is a long-term savings scheme backed by the Government of India, aimed at providing individuals with financial security and retirement benefits. Introduced in 1968, PPF is a popular investment avenue known for its safety, tax benefits, and attractive interest rates.
Any Indian citizen can open a Public Provident Fund (PPF) account. However, an individual can have only one PPF account unless the second account is opened on behalf of a minor. Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not eligible to open a PPF account.
While NPS and PPF are excellent choices for long-term financial goals, fixed deposits (FDs) offer greater flexibility to cater to various financial needs. FDs come with tenures ranging from just a few days to several years, allowing you to customize your investments to meet specific objectives. Whether saving for your child’s education, planning a dream vacation, or aiming for any other financial goal, an FD can be a reliable option to grow your money with guaranteed returns.
Both offer tax-saving benefits and retirement-focused savings. However, fundamental NPS and PPF differences make each one suitable for different types of investors.
| Features |
National Pension System (NPS) |
Public Provident Fund (PPF) |
| Purpose |
Primarily aimed at retirement planning and pension income |
Long-term savings with a focus on guaranteed returns |
| Type of Investment |
Market-linked (equity, corporate bonds, and government securities) |
Fixed-income, government-backed savings scheme |
| Risk Level |
Moderate to high (depends on equity exposure) |
Low-risk, government-backed |
| Lock-in Period |
Locked until the age of 60; partial withdrawals allowed under certain conditions |
15 years (with an option to extend in blocks of 5 years) |
| Tax Benefits |
Contributions eligible under Section 80C (₹1.5 lakh) and an additional ₹50,000 under Section 80CCD(1B) |
Eligible for Section 80C deduction (₹1.5 lakh); tax-free interest |
The National Pension System (NPS) and the Public Provident Fund (PPF) each offer different benefits and features. While both aim to build a retirement corpus, they differ significantly regarding risk, returns, liquidity, and tax treatment.
Regarding risk and safety, the National Pension System (NPS) carries a moderate level of risk as it is linked to the market, with investments allocated in equities, bonds, and government securities.
On the other hand, the Public Provident Fund (PPF) is entirely backed by the Government of India, making it one of the safest investment options. Since it’s not linked to the market, your returns are virtually risk-free, and there’s no worry about market volatility impacting your investment.
NPS has the potential to deliver higher returns, especially in the long run. NPS returns can go up to 10% or more, depending on the asset allocation and market performance. This makes it attractive for investors willing to take on some level of risk in exchange for higher growth potential.
Conversely, PPF provides lower but stable returns, usually in the range of 7-8%. The government revises these returns quarterly, and they are unaffected by market performance, making PPF a more predictable and secure investment for conservative investors.
Liquidity is another aspect in which NPS offers more flexibility than PPF. With NPS, you can make partial withdrawals for specific purposes like education, marriage, or medical emergencies, even before retirement age.
PPF, on the other hand, has a stricter lock-in period of 15 years, with only limited partial withdrawals allowed after 7 years. Additionally, the amount you can withdraw from a PPF account is capped, making it less liquid than NPS. While you can extend the PPF account in blocks of 5 years, the overall liquidity remains lower.
Regarding taxation, both NPS and PPF offer attractive benefits, but they differ in structure.
In NPS, up to 60% of the corpus withdrawn at maturity is tax-free, while the remaining 40% must be used to purchase an annuity, which is taxable as per the individual’s income tax slab. So, while the bulk of your NPS savings may enjoy tax relief, the annuity income will be subject to taxes.
PPF enjoys the EEE (Exempt-Exempt-Exempt) status, which means the contributions, the interest earned, and the maturity amount are all tax-free. This makes PPF one of the most tax-efficient investment options for long-term savings, with no tax liability on the returns or the final corpus.
The NPS and PPF are popular retirement investment options in India. While they cater to similar goals, they have distinct features. But before diving into their differences, let us explore the key similarities that make NPS and PPF attractive to many investors.
| Aspect |
NPS (National Pension System) |
PPF (Public Provident Fund) |
| Type of Scheme |
Pension scheme regulated by the Government of India |
Long-term savings scheme regulated by the Government of India |
| Objective |
Retirement planning and providing regular income post-retirement |
Long-term wealth accumulation and retirement planning |
| Lock-in Period |
Long-term investment with partial withdrawals permitted after specified periods |
Lock-in period of 15 years, with partial withdrawals allowed from the 7th year onwards |
| Withdrawals |
Partial withdrawals are allowed under specified conditions |
Partial withdrawals are permitted after the lock-in period |
Considering the similarities and differences, both NPS and PPF offer distinct advantages that can appeal to those planning for retirement. Deciding ‘is NPS better than PPF?’ depends largely on an individual’s preferences, financial needs, and convenience. For instance, if someone is risk-averse, PPF would be the safer option, while NPS may be more attractive for those seeking higher returns, even if it means taking on more risk. In terms of life goals, NPS is a better choice when there are fewer financial liabilities, whereas PPF is ideal when the focus is on building savings for major milestones like funding a child’s education or marriage.
When considering investments in retirement planning, two popular options in India are the National Pension System (NPS) and the Public Provident Fund (PPF). Both schemes have distinct features that cater to different financial goals and risk appetites.
Market-linked Returns: NPS offers the potential for higher returns compared to traditional fixed-income investments due to its exposure to equity and debt markets.
Tax Benefits: Contributions up to ₹1.5 lakh per annum are eligible for deduction under Section 80C, with an additional ₹50,000 under Section 80CCD(1B).
Flexible Contributions: Allows voluntary and mandatory contributions, including employer contributions for salaried individuals.
Market Risk: Returns are subject to market fluctuations, especially for equity investments, which may lead to volatility in account balances.
Compulsory Annuity: A portion of the corpus must be used to purchase an annuity, which limits liquidity and flexibility in retirement income planning.
Complexity: NPS involves selecting and managing investment options, which may require financial knowledge and understanding of market dynamics.
Government-backed Security: PPF is backed by the Government of India, ensuring capital protection and guaranteed returns.
Tax Benefits: Contributions qualify for deduction under Section 80C of the Income Tax Act, with interest earned and withdrawals being tax-free.
Fixed Returns: Offers a fixed rate of interest announced by the government quarterly, providing stability and predictability in returns.
Long-term Savings: Has a tenure of 15 years, extendable in blocks of 5 years, making it suitable for long-term financial planning.
Low Liquidity: Withdrawals are restricted during the first few years, with partial withdrawals allowed only after the 7th year, limiting immediate access to funds.
Fixed Interest Rate: Returns are subject to changes in the interest rate declared by the government, which may affect overall earnings.
Limited Contribution: There is an annual contribution limit, currently set at ₹1.5 lakh per financial year, which may restrict higher investments compared to NPS.
Both NPS and PPF serve distinct purposes in an investor’s financial plan. NPS suits individuals willing to take on market risks for potentially higher returns and flexible contributions. In contrast, PPF is preferred by those seeking guaranteed returns, tax efficiency, and capital preservation over the long term.
Ultimately, choosing NPS and PPF should align with your risk tolerance, financial goals, and investment horizon. It’s advisable to assess your circumstances and consult with a financial advisor to determine which option best meets your needs for retirement planning and long-term financial security.
Choosing wisely between PPF or NPS, which is better, can pave the way towards a secure and prosperous financial future.
1
NPS and PPF serve different purposes. NPS offers the potential for higher returns with market exposure and contribution flexibility, which is suitable for those comfortable with market risks. PPF provides guaranteed returns, tax benefits, and capital protection, making it ideal for risk-averse investors aiming for long-term wealth accumulation.
2
NPS: Contributions up to ₹1.5 lakh annually qualify for tax deduction under Section 80C, with an additional ₹50,000 under Section 80CCD(1B). However, withdrawals are taxable as per prevailing tax laws.
PPF: Contributions to PPF are eligible for tax deduction under Section 80C. Interest earned and withdrawals are tax-free, making it a highly tax-efficient investment avenue.
3
NPS: Suitable for retirement planning due to the potential for higher returns through market-linked investments and flexibility in contributions. Mandatory annuity purchase ensures a regular income post-retirement.
PPF: Also suitable for retirement planning, offering guaranteed returns, tax benefits, and capital protection. It provides stable, predictable returns without market risk, making it ideal for conservative investors
4
Yes, you can invest in both NPS or PPF simultaneously. Each serves different financial goals—NPS for retirement planning with potential market-linked returns and PPF for long-term savings with guaranteed returns and tax benefits. Diversifying between these schemes can provide a balanced approach to wealth accumulation and retirement planning.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
