10 differences between NPS and PPF that you must know

No evaluation of long-term investments in India can be concluded without a mention of the NPS (National Pension Scheme) and PPF (Public Provident Fund) schemes. Since both these schemes are long-term investment options provided by the government, they are viewed by the Indian populace as being reliable investment schemes to save for life after retirement. In this article, we discuss ten differences between the two government-backed retirement schemes that can help you both, understand them better, and decide the one that you must pick to invest for the long term.

NPS vs PPF: Here are the differences between NPS and PPF:
 

1. Eligibility and types
 

Besides the multiple investment options available to you as an Metra Trust customer, you can consider an NPS or PPF investment, too. Here are the eligibility criteria for both investment options:

• An NPS account can be opened by any Indian citizen who is between 18 and 60 years of age.
• A PPF account can be opened by any Indian resident – that is, an individual who has spent 180 days or more in India. Indian residents can also open a PPF account in the name of their minor children; and can avail tax benefits.

Besides these differences in eligibility criteria, you must bear another difference in mind. NPS comes in two types – NPS Tier 1 and NPS Tier 2, whereas the PPF scheme does not have any other type.

2. Investment limit
 

• In the PPF scheme, an investor can invest a minimum of ₹500 and a maximum of ₹1,50,000 annually. Moreover, a maximum of 12 contributions are allowed.
• The NPS scheme has a minimum contribution of ₹6000 annually, and there is no cap on the maximum contribution as long as it does not exceed 10% of the individual’s salary or 10% of their gross total income, in case they are self-employed. 

3. Partial withdrawal
 

• The PPF scheme allows investors a “partial withdrawal” from the 7^th year of investment with certain conditions.
• In an NPS investment, account holders are eligible for an early partial withdrawal under specific conditions after 10 years of staying invested. To exit before retirement, one must use at least 80% of the accumulated corpus to purchase a life insurance annuity.

4. Interest rates
 

• PPF interest rates are set by the government and are therefore fixed.
• The returns from an NPS scheme are market-linked, and hence, they keep changing over time.

5. Maturity period
 

• A PPF account matures in 15 years.
• The maturity tenure of an NPS account is not fixed. You can continue to contribute to the NPS account until the age of 60; and can extend the investment to the age of 70 years.

6. Taxation

Another importance difference between NPS and PPF is the taxation system. Here are the tax benefits that you can get by subscribing to the NPS and PPF schemes:

• All deposits made in the PPF scheme are deductible under Section 80C of the Income Tax Act.
• Under the NPS scheme, a tax benefit is available only on ₹1.5 lakh under Section 80 CCD(1) of the Income Tax Act and an additional ₹50,000 under Section 80 CCD(2), which brings the total amount to ₹2 lakh.

7. Choice of mode of investment
 

You cannot choose the mode of investment – that is, the way in which you wish to invest your money – through the PPF scheme. However, you can choose between equity funds, government securities funds, fixed income instruments, and other government securities after opting for the NPS scheme.

8. Returns
 

Since the returns depend a lot on the interest rate, which is fixed by the government, the returns earned from a PPF scheme are steady. However, potential returns are usually higher in an NPS investment since the interest rate is linked to the market conditions.

9. Annuity
 

You do not need to buy an annuity if you are invested in the PPF scheme. On the other hand, when your NPS investment matures, you must buy an annuity worth at least 40% of the corpus, unless the maturity amount is less than ₹2 lakh.

10. Liquidity
 

The NPS investment scheme offers a higher liquidity since it provides multiple opportunities of partial withdrawal. The PPF scheme offers partial liquidity, as we mentioned earlier, only after 7 years of investment.

You must consider all the above-mentioned points before deciding on opting for an NPS or PPF investment. Both these investments will set you on the path of wealth growth in the long run. However, you must choose the one that suits your investment style and risk-taking ability. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.