PPF vs NPS: Which one’s better?

Income Tax Tax Savings & Deductions
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1

Retirement planning is an important aspect of achieving financial security by the time you grow old.

NPS (National Pension Scheme) and PPF (Public Provident Fund) are two of the most common long-term savings schemes offered by the government of India which are used to save up for retirement.

However, they differ significantly in their features, benefits that they offer, and tax implications.

What is NPS?

NPS is a voluntary retirement savings program by the Government that allows you to contribute towards a retirement fund. Both employees and employers can contribute towards NPS, and upon maturity, you can withdraw 60% of the corpus as a lump sum and receive the remaining 40% as a monthly pension. Your contribution here is invested in equity, government debt, corporate debt, and alternative assets, providing market-linked returns.

What is PPF?

PPF is a long-term investment scheme backed by the Government of India, where you get stable returns on your investment at an interest rate specified by the government. You can withdraw the entire corpus upon maturity.

Comparing NPS and PPS

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*The returns are market-linked

**The interest rates are revised by the government on a quarterly basis.

Let us take an example.

If you are 30 years old and invest 1.5 lakhs every year into both PPF and NPS till the age of 60. The maturity amount would be as follows:

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When you retire at the age of 60, you’d have a corpus of ₹2.82 crores if you invest in NPS, and ₹1.54 crores if you invest in PPF. However, it’s essential to consider factors like risk tolerance, investment goals, and tax implications when making your choice.

Here are a few criteria to help you decide:

  • Risk: NPS is market-linked and subject to market volatility, hence it is riskier than PPF which offers risk-free returns.
  • Returns: NPS offers higher returns around 9-11% on average, whereas PPF provides a fixed interest rate of around 7-8%, which is revised quarterly by the GOI.
  • Taxation: The entire corpus of PPF at maturity is tax-exempt. In case of NPS, you can withdraw up to 60% of the retirement corpus tax-free, while the remaining 40% needs to be invested in an annuity plan, the pension from which is taxable.

So, which one would you pick?

2

i had opened the PPF account in 2005 .

when will the account get matured ?
what will happen if i forget the maturity date or the account becomes dormant ? will the interest would be keep getting credited and added in the account ?

3

Hey @HIREiN,

PPF has a maturity period of 15 years. Moreover, you need to maintain the minimum contribution every year, or else the PPF account will become inactive.

However, you would still earn interest on the inactive account till maturity.

4

Considering the higher returns and flexibility, I would opt for NPS as it offers market-linked returns and a portion of the corpus can be withdrawn tax-free at maturity. However, the choice depends on individual preferences, risk tolerance, and long-term financial goals. It’s crucial to weigh the benefits and drawbacks of both NPS and PPF before making a decision.

5

After the maturity/expiry of the ppf account is not withdrawn or not renewed ; Will keep getting interest credited after the maturity also?

If i make new deposits the money in the ppf after maturity/expiry ; will i also earn interest on new deposits also ?

Do ppf account has chequebook facility for withdrawal ?

6

Hey @HIREiN,

If in case you do not withdraw/ close your PPF account, it will be extended for 5 more years.

For withdrawal from PPF account you need to submit a withdrawal form to the respective bank/post office. After your application is processed and approved, the amount is credited to the linked bank account or given as a cheque.

Here’s a read that might help you further: What happens to your PPF account post its maturity? We explain | Mint