National Pension Scheme vs Public Provident Fund: Which one to choose?

Two popular long term investment alternatives: National Pension Scheme vs Public Provident Fund. Both, seem to be a good fit for risk averse investors who wish to invest money for their retirement. Which one to choose? Let’s analyse few important points to take the correct decision.

Public Provident Fund & National Pension Scheme: Importance

Post-retirement life becomes hard for most people because they don’t follow a systematic approach towards building a retirement corpus. For sure, everyone is pretty aware of terms like Public Provident Fund and pension, etc. No doubt, you must have invested in some kind of retirement plan. The real issue is choosing the wrong scheme. This is the main reason why people face issues after retirement.

Well, they are not at fault. When you have dozens of attractive investment schemes in the market, the confusion is obvious. But don’t worry, that’s why we are here!

As mentioned in the start, people are familiar with pension and provident fund. But they don’t understand the actual difference between both terminologies. For instance, provident fund refers to a lump sum amount that you will get after maturity. In the case of a pension, it is referred to fixed amount that you will get periodically after retirement. Sometimes, people get confused between both types of investment schemes. As a result, when they want provident fund, they accidentally invest in a pension scheme. This is the main issue to deal with!

Saving Schemes: Role of Government

When it comes to saving schemes, we can’t ignore the role played by the Indian Government. Their efforts towards making safe and tax-free saving schemes are commendable. The best part, the government has introduced the scheme for every age group and income classes. The main objective is to empower every section the society.

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In this regard, the government launched two most important retirement schemes. That is National Pension Scheme and Public Provident Fund. If you have no prior knowledge about them, don’t worry, we got your back.

In this guide, we are going to compare National Pension Scheme and Provident Fund. By comparing features, we will make it easier to pick the best investment options as per your needs!

Let’s dive in and do a thorough analysis of these two common investing options in India.

Before we jump into the comparison National Pension Scheme vs Public Provident Fund, let’s have a brief look at both schemes: 

What Is National Pension Scheme or NPS?

If you are above 18, just got employed & want to save for retirement, National Pension Scheme might be your best bet. The government introduced this scheme to encourage saving habits among people. Every Indian citizen, who is employed having age between 18 – 60 years, can avail this scheme.

You must be thinking what is special here? Well, unlike any other pension scheme, it does not come with fixed incomes. Hold on! Variable income means, there will be highs & lows. NPS offers a unique option, where you can invest savings in different asset classes like equity or government bonds. So, this is the unavoidable attraction!

What Is Public Provident Fund or PPF?

When people hear the word Public Provident Fund, they limit its accessibility to employees only. The Indian Government took this issue very seriously and came up with Public Provident Fund. With PPF, one can build retirement corpus with the lesser contribution. PPF is highly focused on low-income classes, where people cannot afford making bigger contributions. Can you believe that the minimum contribution amount is Rs. 500 per year only. And the best part, it offering the relatively high-interest rate that is 8% p.a. Better than mainstream banks!

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PPF vs NPS, NPS vs PPF, National Pension Scheme, Public Provident Fund

National Pension Scheme vs Public Provident Fund: NPS & PPF Comparison


*PPF Interest rate for the quarter beginning 1st October 2018 is 8% only.

PPF vs NPS: Who Can Invest?

All Indian residents can apply for National Pension Scheme and Public Provident Fund.

PPF vs NPS: What Is The Age Limit?

  • To apply for NPS, you should have age between 18 – 60 years.
  • For PPF, there is no age limit for investors.

PPF vs NPS: Objectives

  • NPS offers post-retirement benefits in the shape of pension. One can have both pension and lump sum withdrawal in this scheme but subjected to certain conditions.
  • PPF is a long term investment with lock in tenure of 15 years. However, partial earlier withdrawal is possible subject to few conditions.

Fund Manager

  • If you don’t understand anything about asset classes in NPS, you can have fund manager to manage your investments as per your needs.
  • In PPF, central government manages the accounts.

PPF vs NPS: Rate Of Return

  • In NPS, there is no fixed rate of return. Because you are making the investment in various classes including equity or government bonds, etc. Equity classes offer high returns with high risks. But Government securities offer fixed returns without risks. So, it depends on upon your choice!
  • In the case of PPF, the interest rate is 8% p.a. That is great!

PPF vs NPS: Minimum Deposit

  • The minimum contribution for NPS is Rs. 6000 per year.
  • For PPF, the minimum contribution is Rs. 500 per year.

PPF vs NPS: Lock-In Period

  • In NPS, the lock-in period is referred to subscriber’s age of 60 years.
  • In PPF, the lock-in period is up to 15 years.
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Tax Rebate

  • For NPS, the tax rebate up to Rs. 2 lakh per year is allowed.
  • In PPF, you can avail tax benefits for the maximum investment of Rs, 1.5 lakh per year.

Returns On Maturity

  • On maturity, in the case of NPS you can withdraw 60% of the total corpus as the lump sum. While rest must be invested to purchase annuities or pension. You cannot withdraw complete corpus as the lump sum amount.
  • For PPF, you will get entire investment once the lock in period is finished.

Premature Withdrawals

  • Under NPS, the premature withdrawal is allowed in special circumstances. But it’s not advisable to do that. Otherwise, you will get only 20% of the amount as the lump sum. Rest will go for annuities!
  • In PPF, the premature withdrawal for special conditions is allowed but after seven years since the opening of the account. Still, subjected to certain conditions!

PPF vs NPS: Final Verdict

We have given a handy comparison of PPF vs NPS. Now, first check the features of National Pension Scheme and Public Provident Fund, compare them with your requirements. Pick the most suitable one! In case, you have a question, please feel free to ask in the comments section.

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