Savings Schemes
by 5paisa Research Team Last Updated: 2023-06-05T17:48:07+05:30
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One of the crucial aspects of financial planning is retirement planning, of which two of the most popular investment methods are the  Public Provident Fund (PPF) and the National Pension Scheme (NPS).

Both these options come with their individual set of benefits. To get a deep understanding, it is essential to know the difference between NPS and PPF and the way they can fit into your strategy for retirement. Read this article till the end to secure extensive knowledge of NPS and PPF.

What is NPS?

National Pension Scheme, commonly called NPS, is a voluntary retirement savings plan launched by the Indian Government for all Indian citizens in 2004. Even the NRI are eligible to receive the benefits of this scheme. The PFRDA (Pension Fund Regulatory and Development Authority) regulates the scheme and offers individuals to secure considerable savings for their post-retirement years. 

This long-term investment option offers attractive tax benefits and has become famous for many. Individuals can invest in various assets such as equities, government securities, and corporate bonds, among many others. Investors can select their investment method on the basis of their risk-taking capability and the goals of their retirement. 

Income Tax Benefits With National Pension Scheme (NPS)

The Investors are offered attractive tax benefits under this scheme. The investors' contributions in their NPS account can opt for a tax deduction under Section 80C of ITA (Income Tax Act) which is upto Rs, 1.5 Lakhs.  

Moreover, under Section 80CCD(1B) of the IT(Income Tax) Act, contributors are also eligible for an additional subtraction of upto rupees 50,000. Also, the lump sum maturity amount is partially exempted from tax.

Facility For Premature Exit And Withdrawal

Other than tax benefits, NPS offers a facility for premature withdrawal on the basis of specific conditions like a minimum of three years of account opening and withdrawing not more than 25% of total contributions. The contributors are free to exit the scheme upon retirement age or 60 years. 

Two Types of Investment

NPS comes with two different investment methods, namely, the auto choice and the active choice. In the case of active choice, the investor decides on allocating contributions among government securities, corporate bonds and equity. 

While in Auto Choice, the allocation is primarily determined by the age of the investor and transforms automatically from equity to debt with the investor's approach to the age of retirement. 

What is PPF?

PPF, commonly referred to as Public Provident Fund, is also a long-term scheme for savings launched by the Indian government back in 1968. The Ministry of Finance regulates the scheme and entertains availability at designated post offices as well as banks all over India. 

The scheme entertains a lock-in period of 15 years throughput which individuals make regular contributions to earn returns in the form of interest against their investments. Just like NPS, PPF also comes with various tax benefits. Read below to learn about the amazing tax benefits offered by PPF.

Public Provident Fund (PPF) Benefits For Income Tax

Like  NPS, PPF to offers attractive tax benefits to the contributors. The contributions are eligible for a deduction of till 1.5 Lakhs under ITA (Income Tax Act) Section 80C. The earned interest and the amount on maturity are also tax-free. 

Lock-in Period And Premature Withdrawal

PPF comes with a 15-year lock-in period. However, individuals can make partial withdrawals after the completion of five years from their PPF account. However, the withdrawable amount is limited to 50 percent of the total balance end of fourth year preceding the withdrawal year of the total balance at the end of previous year. 

Loan Availability Against The Deposit

On completing six years of the PPF account, contributors can take loans against their accounts. However, there exists a limit for the availability of loans, which is restricted to 25% of the total account balance. The loan must be repaid within 36 months, with an interest of 2% annually. 

Key Differences Between NPS vs PPF

Basis Of Comparison

National Pension Scheme (NPS)

Public Provident Fund (PPF)

Nature of investment

Market-linked investment designed to offer benefits on retirement

Long-term investment scheme with government backing and guaranteed returns

Limit of investment

No limit on the amount that the investor intends to contribute

The limit of investment is upto 1.5 lacks every month

Lock-in period

Till 60 years or on retirement

15 years and is extendable for another 5 years


Investors can make choice among government securities, debt, and equity

Individuals are not entitled to choose the allocation of assets


Varies depending on the market condition

Government-guaranteed fixed returns

Tax Benefits

Withdrawals are taxed

Withdrawals are tax-free

Scope for premature withdrawal

Withdrawal is not allowed unless the reason is critical illness or higher education

Allowed only after completing of five years


NPS vs PPF: Comparison

As you are aware of the difference between PPF and NPS, here are some comparisons that you can look at:

●    NPS is primarily a market-linked investment, while PPF is a government-backed scheme offering guaranteed returns.
●    PPF account has a limit on investments of 1.5 lakhs per annum, whereas NPS doesn't limit the contribution amount.
●    NPS has a more extended lock-in period than PPS, which is till 60 years or post-retirement. The lock-in period offered by PPF is 15 years.
●    Both come with fantastic tax benefits.
●    Considering the options for investment, NPS offers more flexibility to the contributor as one can choose their asset allocation among deby, government securities, and equity. PPF doesn't offer any choice on asset allocation to the contributors.
●    The returns from NPS contributions vary as it offers market-linked returns, while PPF provides fixed and guaranteed returns.
●    Premature withdrawal in NPS is only offered in certain critical cases. While withdrawals from PPF can be made after the completion of five years under certain conditions.


Therefore both NPS and PPF offer individuals with a beneficial savings plan for post-retirement. But the answer would depend on several factors if asked which one is better- NPS vs PPF. These factors include the age of the contributor and their capability of risk-taking. One must choose the one that will offer the best returns to enjoy life without any financial crisis post-retirement.

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More About Savings Schemes

Frequently Asked Questions

Yes, NPS and PPF can be taken at the same time. If you aim to make higher contributions and secure a good amount of retirement savings, you can invest in PPF and NPS. 

The answer depends on your goal. NPS might not be the best scheme for you if your goal is to save for your children's education or your daughter's marriage, as it doesn't offer a fixed or guaranteed return. If you are intending to take a risk, then contributing to an NPS account is also beneficial in the long run. 

During the entire NPS tenure, one can make a maximum of three withdrawals with a gap of five years between each partial withdrawal.