NPS vs PPF

The below table enumerates the key differences between the National Pension System and Public Provident Fund:

Several factors need to be considered when deciding whether PPF or NPS is better as a financial tool to fund your golden years. Here’s a short list of factors to consider:

• First and foremost is risk tolerance of the investor. Since the National Pension System is tied to market fluctuations, it can give you higher returns but also involves more risk. The PPF, on the other hand, is a government-backed scheme that offers secure and stable returns, although this might result in lower returns of PPF versus NPS. So conservative long-term investors might prefer PPF over NPS, while more risk tolerant investors might prefer the opposite.
• On the returns side, the NPS has the potential to provide inflation-beating market-linked returns. PPF on the other hand offers predictable returns that may not beat inflation in the long-term. So, investors seeking potentially higher returns over predictability may prefer to invest in NPS versus PPF.
• As far as liquidity is concerned, the NPS allows partial withdrawals with restrictions regarding to the usage of money. In the case of PPF, you get the option of loan against PPF after completion of 3 years and up to the 3nd of the 6th year. From the 7th year onwards you can make partial withdrawals subject to applicable terms and conditions.
• In terms of tax treatment, both PPF and NPS investments offer tax benefits as long as you have opted for the old tax regime. However, being a EEE instrument, returns and maturity amount from PPF are completely tax-free. However, in the case of NPS, income from annuities are taxable as per the applicable slab rate of the individual.

Also Read: Is PPF Interest Taxable?

Because of the favourable tax treatment available for PPF returns, it is often preferred by investors looking to minimise tax burden. The final decision will ultimately depend on the individual risk appetite, return expectations, and other tax considerations relevant to the individual investor.

Public Provident Fund (PPF), it is a much older, government-backed fixed-return investment product. This fund appeals to individuals because of its long-term investment horizon and predictable returns. Any Indian citizen can invest in a PPF account. One citizen can have only a single PPF account in their name. NRIs and HUFs are not allowed to open a PPF account.

Earlier, it was not possible to close a PPF prematurely. Now you can prematurely withdraw the fund after keeping the PPF active for five years only if:

• You are paying for someone’s higher education
• Are facing exceptional medical expenses that can be life-threatening
• Change in residency status of the account holder on production of a copy of Passport and visa or Income-tax return

The PPF is currently (as of May 2025) offers an interest rate 7.1% p.a. To maximise earnings associated with the deposit, you should deposit funds into the account before the 5th of each month to start interest accrual in the same month.

The NPS and PPF are useful instruments for long-term financial planning, but they have differences. The NPS is focused on generating market-linked returns and is intended for retirement-related savings, providing flexibility in investment options, but it also comes with a higher market risk. The PPF is a government-backed scheme with guaranteed returns and is more suited for risk-averse individuals who wish minimize the risk associated with their investment. Choosing between NPS and PPF totally depends on your risk appetite and retirement goals. It is sensible to consider your circumstances when determining which investment option is best suited for you.