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NPS vs PPF: Which Option is Better for Investment?

NPS vs PPF: Which Option is Better for Investment?
February 19, 2024


No salaries are to be credited. It is this dreadful thought that makes every employee worry about retired life. But with the correct planning in place and the right investments at the right time, there’s nothing to be anxious about. These days there are a lot of retirement schemes and pension plans available to invest in. Still, the most popular are the government-backed Public Provident Fund and the National Pension Scheme.

To understand which of the options is better for investment, it is indeed wise to do a comparative study of NPS vs PPF.Let us start from the basics before we move to the difference between NPS and PPF.

What is NPS (National Pension System)?

The National Pension System is a government-sponsored and market-linked pension scheme that enables people to earn high returns from their investments over the long term within a mechanism regulated by the government. By investing in this scheme, one can create a retirement corpus and get a regular pension post-retirement while saving on income taxes. 

Designed to provide the security of pension to the organized and unorganized workforce alike, NPS aims not only to provide financial security in retired life but helps one grow his/her money. However, one can get the fund redeemed only after retirement whereas early or partial withdrawals of the fund are allowed after 10 years only on specific grounds. 

There are tax benefits available when you invest in NPS. Payments towards the scheme entitle you to a tax deduction of up to Rs 1.5 lakh under section 80C of the Income Tax Act, 1961. Tax exemption of an additional Rs 50,000 is also available under section 80CCD(1B). 

Who can invest in NPS?

The National Pension Scheme is available to any citizen of India who falls in the age bracket of 18-70 years. One can avail of the benefits by joining the scheme and making regular investments in it. The following are the criteria to be eligible for investing in this scheme:

  • You need to be within 18-70 years when you apply POP/POP-SP.
  • The account holder needs to furnish relevant documents for the Know Your Customer (KYC) requirements.

What is the Public Provident Fund (PPF)?

Introduced in 1965, the Public Provident fund or PPF is a government-funded scheme that provides guaranteed returns on your investment through compound interest. With a lock-in period of 15 years, this savings scheme can help you build your retirement corpus over a long investment horizon. Currently, this scheme offers 7.1% interest that compounds yearly and is considered an ideal choice for those looking for a risk-free investment. 

Anyone can join the scheme and invest in a PPF account to ensure a secure financial backup as well as enjoy tax benefits in the process. For deposits in a PPF account up to Rs 1.5 lakh a year, one can enjoy tax exemption under section 80C of the Income Tax Act, 1961. 

The investments to the account need to be within a minimum of Rs 500 and maximum of Rs 1.5 lakh a year and up to 12 deposits are permissible annually. With the maturity of the account at 15 years, PPF allows withdrawals after 5 consecutive years of active operation under the following circumstances:

  • To pay higher education fees
  • To take care of medical emergencies (in case of critical or terminal diseases, backed by medical documents)

Who can invest in PPF?

Anyone who is a citizen of India and aged above 18 years is eligible to open a PPF account and invest in it. The scheme is not available to Non-Resident Indians (NRIs) or Hindu Undivided Families (HUFs). One can have only one PPF account to your name and joint accounts are not allowed. However, one can have an additional PPF account on behalf of someone who has an unsound mind or is a minor.

NPS vs PPF: Analysing Investment, Returns, Safety, Taxation and Liquidity

To figure out which investment plan is the most suitable form of investment for you, it’s important to analyse investment, returns, safety, taxation and liquidity. To compare these aspects and ascertain whether NPS or PPF is better, let us take a look at the following table.





Minimum annual investment is Rs 6000, no upper limit


Minimum and Maximum annual investment are Rs 500 and Rs 1.5 lakh


High returns at around 12-14%, but with market risk and long investment horizon


Moderate but guaranteed returns at 7.1% compound interest currently


Low because it’s market-linked

High because it’s risk-free


Tax deductions up to Rs 2 lakh a year. 40% of NPS is tax-free hence considered as low exemption.

Tax deductions up to Rs 1.5 lakh a year. Hence fully exempted.


Low because of the longer lock-in period

Low because of the longer lock-in period

Key differences between NPS and PPF

To get more clarity on National Pension Scheme vs PPF, it’s crucial to compare the key differences between the two. Here’s a table highlighting the differentiators.

Point of Comparison



Rate of Interest

7.1% (currently)

10-14% (based on market)


Indian citizen above 18 years. NRIs can’t avail.

Indian citizen within 18-70 years. NRIs can open an account.

Maturity of scheme

15 years. Can be extended by 5 years.

Not fixed. Can vary between 60 to 70 years of age of the subscriber.


The minimum and maximum annual investment are Rs 500 and Rs 1.5 lakh.

The minimum annual amount is Rs 6000 with no upper cap.

Tax deductions

Fully exempted as tax deductions are available up to Rs 1.5 lakh a year under section 80C.

Partial exemption as yearly payment up to Rs 1.5 lakh is tax free under section 80C. Additional deductions are available up to Rs 50,000 under section 80CCD (1B).


Partial withdrawals allowed from 7th year onwards under specific grounds.

Partial withdrawal allowed after 10 years. But to exit before retirement, 80% of the corpus has to be used in buying an annuity plan.

Freedom to choose how to invest


Yes, you can choose the investment portfolio.


Guaranteed returns as these are risk-free investments at government-regulated interest rate.

Returns depend on market volatility.

Need of buying annuity plan at maturity

Not needed.

You need to buy an annuity plan with at least 40% of the maturity corpus.

Similarities between NPS and PPF

Not just differences, there are certain points of similarities too when you compare NPS vs PPF. Let us check them out in the following table.

Similarities of NPS and PPF

Both are meant for retirement corpus building

Both offer tax benefits

Both are long-term investment options

Both require opening an account

Both offer partial withdrawals

No tax on returns or maturity corpus for both

NPS vs PPF: Which is the better investment option?

Going by the similarities and differences, both have certain features that can appeal for retirement planning to those looking to create a solid financial backup as a retirement plan. However, which of the two will suit an investor more, will depend on his/ her personal preferences, needs and convenience. For example, if an individual is risk-averse, PPF is a wiser bet, while NPS is a more alluring pick for someone eyeing higher returns, even at greater risk. Whereas, in terms of life goals, NPS is a better choice when there’s less liability, while one should rely more on PPF if savings are needed to fund the child’s education or marriage. 

Other alternate investment option

If you are looking for investment opportunities that can help you with guaranteed returns then you can definitely evaluate life insurance savings plan. This type of financial instrument can help you build your corpus as well as provide life cover. Savings plan can help you fulfil your financial goals as well as secure your financial future.


Both PPF and NPS have their own set of plus and minus points. As an investor aiming to create a retirement corpus, it is crucial to identify and analyse your specific goals and preferences. Based on that, it will be easier to pick the option that best fits your needs. 

FAQs about NPS vs PPF

Q. Can I have NPS and PPF both?

A. Yes, you can invest in both NPS and PPF. But you can claim a total tax deduction of up to Rs 1.5 lakh a year for the cumulative investment in the two schemes. In addition, another deduction of up to Rs 50,000 can be claimed for the annual investment in NPS.

Q. Which one is more suitable for retirement planning, NPS or PPF?

A. NPS and PPF offer you two different types of investment opportunities in terms of the risk associated. NPS being market-linked, can offer you higher returns at higher risk. PPF on the other hand is a traditional scheme with guaranteed returns. If you are looking to fund family goals like your child’s education or marriage or buying a home, a safer investment like PPF should be ideal. But if you have the willingness and ability to take risks and look forward to growing your wealth, NPS can be profitable.

Q. How does PPF differ from NPS?

A. PPF offers you guaranteed returns at relatively lower interest rates through the power of compounding. NPS can generate higher returns at 10-14% but there’s market risk involved. Furthermore, PPF is fully exempted from tax as the maximum amount you can deposit is Rs 1.5 lakh per year which is equal to the maximum tax deductions available under section 80C of the Income Tax Act, 1961. But NPS is partially tax exempted as there’s no upper limit for the investment.

Q. Which one is better, PPF or NPS?

A. NPS can fetch you 10-14% of returns but with market risks alongside. But since the scheme is under the regulation of the government, chances of malpractices are nominal. PPF on the other hand, provides completely safe investment and guaranteed returns as it is backed by the government and not linked to the market. So, it’s important to identify which suits your needs and then make the suitable investment.

ARN -ED/12/23/6784

Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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