Even though National Pension System (NPS) and Public Provident Fund (PPF) both schemes are both backed by the Government, are risk-free and offer tax benefits also, their investment purpose and return rate differ very much.
NPS is a pension savings scheme in which the performance completely depends upon the fund managers. On the other hand, the sole purpose of PPF is not retirement though people can use it for the same and it has a fixed interest rate set by the Government quarterly. And more importantly, the payout plans of these schemes are also distinct.
NPS vs PPF: Differences Between These Two Schemes
Risk-Free
As both NPS and PPF schemes are backed by the Government, they are risk-free. Meanwhile, Pension Fund Regulatory and Development Authority (PFRDA) manages NPS and PPF is regulated under the Post office savings scheme.
Return On Investment
NPS does not have any fixed return structure. In this scheme, returns vary on your investment decisions and risk-taking capability. NPS offers different investment options, “up to 75 per cent in equity (E), up to 100 per cent in corporate bonds (C) and government securities (G) each and up to 5 per cent in alternate assets”. Thus, your returns will be the result of your decision related to investment options.
On the other hand, PPF offers a fixed interest rate which is set every quarter by the Government. “Traditionally, PPF rates have been in the range of 7-8% annually. Currently, the return for the June-September 2022 quarter is 7.1%. It has remained the same for quite some time. It was at 7.9 per cent in the January-March 2020 quarter, while it was 8% in April-June 2019.”
Liquidity
“NPS matures at 60 years of age but can be extended to 70 years. Withdrawals are allowed up to 25% of your total contributions three years after account opening under the provision of a partial withdrawal facility. However, only three withdrawals are allowed till maturity, which can be availed of on grounds such as marriage, children’s education, house purchase or construction, and crucial illnesses such as cancer or kidney failure,” mentioned by outlook India.
“On the other hand, PPF has a 15-year tenor and, typically, allows partial withdrawals from the seventh year from the account opening. The maximum partial withdrawal amount is 50% per fiscal year based on the account balance of the previous financial year. The PPF scheme also offers loans against your account balance from the third to the sixth financial year. However, the maximum loan amount is 25% of the balance at the end of the 2nd financial year.”
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Tax Benefits
“Up to Rs. 1.5 lakh is tax-deductible for NPS investment under Section 80C of the Income-tax Act, 1961. An additional income tax deduction of Rs 50,000 can be availed under Section 80 CCD (1B). One can withdraw up to 60% of the total amount tax-free on completion of the NPS tenure, but 40% of the balance must be invested in an annuity (monthly income), which is taxable”.
