NPS vs PPF – Which one is better and basic Difference
There has been a long debate on which one is better- the National Pension Scheme or the Public Provident Fund. Lets us explore the basic differences between the two in order to clear the confusions. Below stated are 10 basic differences between PPF and NPS which define both the schemes.
|National Pension Scheme (NPS)||Public Provident Fund (PPF)|
|1. Purpose||National Pension Scheme is aimed for benefit of individuals after retirement. In Tier 1, the contribution is made by the employee and the same amount is paid by the Government. For Tier 2, no contribution is made by the Government. This is an additional tax saving instrument.||PPF is a government regulated scheme which is saving cum tax saving instrument and is considered to be very safe and reliable. This is a primary tax saving instrument.|
|3. Duration||NPS is aimed at benefits after retirement which is after 60 years of age.||PPF has a fixed locking period of 15 years.|
|All Indian citizens between the age of 18-60 years and who are working can apply for this scheme. NRIs are also eligible.||Indian citizens are eligible for this scheme. Minors can also enrol guided by their parents or guardians.|
|5. Interest||A maximum of 10% interest along with employer’s contribution are offered after retirement.||Interest rate as well as locking period varies from bank to bank which generally ranges between 6-8.75% per annum.|
|5. Pre-mature withdrawals||Early maturity is allowed but only 20% can be obtained as lump sum. The rest of the 80% needs to be invested in the life annuity scheme which is moderated by a life insurance company approved by IRDA (Insurance Regulatory and Development Authority)||Pre-term withdrawal is only allowed after four financial year lapse. Only 50% of the actual amount invested is allowed to be withdrawn and only once a year.|
|6. Tax benefits||Tax benefits are offered for NPS. Addition to one the 80C Act of 1.5 lakh, additional fifty thousand is exempted from tax.||Tax exemption is offered for one 1.5 lakh which is covered by the 80C Act.|
|7. Investment charges||NPS charges a very nominal amount of 0.250% as management charges.||No management charges are levied for opening an account for PPF.|
|8. Investment amount||For Tier 1, you will have to pay a minimum of INR 500 as subscriber’s contribution. Contribution is allowed once a year and a minimum of INR 6000 per year. For Tier2, minimum INR 1000 is required and a total of INR 2000 in every financial year. There is no maximum upper cut-off for contribution.||For PPF a minimum of INR 1000 is required to open an account. There is no upper limit. The stipulated amount can be deposited in 12 instalments in a financial year.|
|9. Investment mode||Investments can be made in three separate sectors, namely; equity, government securities and corporate debts. One can choose from any of the above three. In the case of equity, only 50% of the amount can be utilised to be invested. If no option is chose by the contributor, automatic involvement of money made. Loan facility is not available.||There are no investment options offered to the contributor to choose from. The investment is automatic and government regulated. The investment is automatic and government regulated|
|10. Returns||NPS is related to market risk and trends which affect the final return.||PPF is purely regulated by the Ministry of Finance. Returns are precisely predictable and interest rates are declared by the Government every quarter.|
Bott having own advantages from tax saving to investment option. However if you ask me, which one is better PPF vs NPS, then i will go ahead with PPF.
NPS is surely a good additional tax saving instrument but also has stringent pre-mature withdrawals rules, no loan facilities and involves market risks. On the other hand PPF is very safe and predictable which also offers loan facilities from the seventh financial year. Investment in both depends mostly on the primary need and future return expectations of the contributor.