Search for Loan Search for Card Search for Insurance Search for Investment Search for Stocks Search for Credit Card Search for Personal loan Search for IPO Search for Indices

Customer Portal

EMI Card

Download

Steal Deals

BAJAJ FINSERV DIRECT LIMITED

Savings Scheme

NPS vs PPF: Understanding the Key Differences

Deepshikha Nainani Posted on June 13, 2025

Table of Contents

Introduction

Planning for retirement is a crucial aspect of financial well-being, especially for salaried individuals. The Indian government offers two prominent long-term savings schemes to aid in this endeavour: the National Pension System (NPS) and the Public Provident Fund (PPF). Both schemes provide tax benefits and are designed to encourage disciplined savings. However, they differ significantly in structure, returns, and withdrawal flexibility. This article delves into the key differences between NPS and PPF to help you make an informed choice.

Overview of NPS and PPF

National Pension System (NPS)

The National Pension System is a government-backed, voluntary retirement savings programme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It allows individuals to invest in a mix of equity, corporate bonds, and government securities, offering the potential for higher returns linked to market performance. NPS is structured into two tiers:

Tier I Account: This is the primary retirement account with restrictions on withdrawals, aimed at building a retirement corpus.
Tier II Account: A voluntary savings facility with greater liquidity, allowing withdrawals at any time.

Public Provident Fund (PPF)

The Public Provident Fund is a long-term savings scheme established by the Government of India, offering a fixed rate of interest and tax benefits. It is designed to provide a secure investment avenue with guaranteed returns, making it an attractive option for risk-averse investors. The PPF account has a tenure of 15 years, which can be extended in blocks of five years. Interest rates are determined by the government and are compounded annually.

Key Differences Between NPS and PPF

Here are the major differences between NPS and PPF:

Key Features	NPS	PPF
Eligibility	Any Indian citizen (including NRIs) aged 18–70 (Tier I); contributions continue up to 70 under deferment.	Any resident Indian (no age limit). Guardians may open on behalf of minors.
NRI Eligibility	NRIs with a valid Indian passport and NRE/NRO account may subscribe. OCIs/PIOs are not eligible.	NRIs cannot open accounts; Upon getting NRI status, existing accounts continue till maturity but cannot be extended.
Interest Rates	Market-linked; historical returns around 9–12% p.a. (varies by portfolio mix).	Fixed quarterly; current rate 7.1% p.a. (compounded annually).
Maturity Period	Normal exit at 60; subscribers may defer and contribute to 70. Lump-sum or phased exit options apply.	15-year term, then extendable indefinitely in five-year blocks (no fresh contributions during extension).
Investment Limit	Tier I – ₹500 to open; ₹1,000 p.a. thereafter. Tier II – ₹250 to open; no annual limit.	₹500 minimum; ₹1.5 lakh maximum per financial year; up to 12 contributions.
Tax Benefits	Deduction up to ₹1.5 lakh under Section 80CCD(1) plus ₹50,000 under Section 80CCD(1B). Employer contribution (10% of salary) deductible under Section 80CCD(2).	Deduction up to ₹1.5 lakh under Section 80C; interest and maturity fully tax-exempt (EEE).
Partial/Premature Withdrawal	Partial withdrawal (up to 25% of own contributions) from year 3 for specified purposes (max three times). Pre-mature exit (<60) requires 80% corpus in annuity if corpus > ₹2.5 lakh.	Partial withdrawal from year 7 (up to 50% of balance at end of previous year). Loans allowed in years 3–6; premature closure under specified conditions (e.g. education, medical).
Investment Choice	Yes – subscriber selects allocation among equity, corporate bonds and government securities (active or auto choice).	No – funds wholly invested in government securities.
Annuity	Minimum 40% of corpus must go to purchase an annuity (if corpus > ₹2.5 lakh); lump-sum withdrawal on balance.	None – full corpus withdrawable at maturity.

NPS vs PPF: Pointwise Comparison

When evaluating the National Pension System (NPS) and the Public Provident Fund (PPF), it's essential to consider various factors to determine which aligns best with your financial goals.

Risk and Safety

NPS: Being market-linked, NPS carries moderate risk. However, it's regulated by the Pension Fund Regulatory and Development Authority (PFRDA), ensuring a structured framework for investors.
PPF: PPF offers a risk-free investment avenue as it's backed by the Government of India, providing guaranteed returns.

Returns

NPS: Returns are market-dependent and can vary based on asset allocation. Historically, NPS has offered returns in the range of 9% to 12% annually.
PPF: The interest rate is fixed by the government quarterly. As of now, it stands at 7.1% per annum.

Tax Benefits

NPS: Contributions up to ₹1.5 Lakhs are eligible for deduction under Section 80CCD(1), with an additional ₹50,000 deduction under Section 80CCD(1B), totaling ₹2 Lakhs.
PPF: Investments up to ₹1.5 Lakhs qualify for deduction under Section 80C. The interest earned and maturity amount are entirely tax-free, falling under the EEE (Exempt-Exempt-Exempt) category.

Liquidity and Withdrawal

NPS: Partial withdrawals up to 25% of contributions are allowed after three years for specific purposes like higher education, marriage, or medical treatment. Full withdrawal is permitted at retirement, with 60% as a lump sum (tax-free) and 40% mandatorily should be used to purchase an annuity.
PPF: Partial withdrawals are permissible from the 7th financial year. Loans can be availed between the 3rd and 6th years. Premature closure is allowed under specific conditions like higher education or medical emergencies.

Investment Flexibility

NPS: Investors can choose their asset allocation between equity, corporate bonds, and government securities, offering flexibility based on risk appetite.
PPF: Does not offer investment flexibility; the entire amount is invested in government securities.

NPS or PPF: Which is Better

Choosing between NPS and PPF depends on individual financial goals, risk tolerance, and investment horizon.

NPS can be suitable for those aiming for a higher retirement corpus and willing to accept market-linked risks. Its flexibility in asset allocation and higher potential returns make it an attractive option for long-term retirement planning.
PPF can be suitable for conservative investors seeking guaranteed returns with tax benefits. It's a secure avenue for long-term savings, especially for goals like children's education or marriage.

For a balanced approach, you can invest in both schemes to get a mix of security and growth, helping in diverse financial objectives.

FAQs

Can I invest in both PPF and NPS?

Yes, you can invest in both PPF and NPS simultaneously. This strategy allows you to benefit from the guaranteed returns of PPF and the potentially higher, market-linked returns of NPS.

Are NPS tax-free when they mature?

At maturity, you can withdraw up to 60% of your NPS corpus tax-free. You have to use the remaining 40% to buy an annuity. Moreover, the income from this annuity will be taxable as per your income slab.

What is the difference between NPS and PPF?

NPS is a market-linked retirement scheme offering higher potential returns with moderate risk, while PPF is a government-backed savings scheme providing fixed, risk-free returns. NPS requires annuity purchase at maturity, whereas PPF allows full withdrawal.

Can my PPF account be extended for an additional three years after it matures?

PPF accounts can be extended in blocks of five years after maturity. Extensions for periods less than five years, such as three years, are not permitted.

Can my PPF account be transferred to another branch or office?

Yes, you can transfer your PPF account from one bank or post office branch to another across India. The process involves submitting a transfer request at your current branch.

Hi! I’m Deepshikha Nainani

Blogger

Deepshikha is a marketing and communications expert with over a decade of experience across various industries. With expertise in performance content, digital campaigns and brand management, she excels in creating data-driven, creative solutions that drive growth and engagement. Holding certifications in digital marketing and content strategy, she is passionate about combining creativity with analytics to create compelling marketing narratives that resonate. During her downtime, Deepshikha enjoys watching films and documentaries, listening to music, cooking and traveling.