Why Should You Choose NPS Ahead of PPF?

Investments are intrinsic to your financial planning for two reasons – to create wealth with long and short term perspectives and secondly, to save tax with the help of investments. Many of the investment options that you look up to for achieving your goals are also efficient tax savers. As the dictum goes, money saved is money earned; your tax-saving investments also cater eminently to this principle. Since we are comparing the two important tax-saving instruments - NPS and PPF, that have the greatest impact on the Indian salaried taxpayers.

Read more
Save Tax
Upto ₹46,800 Under Sec 80C
Best Tax Saving Plans
  • High Returns

    Get Returns as high as 17%*
  • Zero Capital Gains tax^

    unlike 10% in Mutual Funds
  • Save upto Rs 46,800

    in Tax under section 80 C
We are rated~
58.9 Million
Registered Consumer
Insurance Partners
26.4 Million
Policies Sold
In-built life cover
Get Instant Tax Receipts
Save upto ₹46,800 in Taxes Under Section 80C
We don’t spam
View Plans
Please wait. We Are Processing..
Your personal information is secure with us
Plans available only for people of Indian origin By clicking on "View Plans" you agree to our Privacy Policy and Terms of use #For a 55 year on investment of 20Lacs #Discount offered by insurance company
Get Updates on WhatsApp
We are rated~
58.9 Million
Registered Consumer
Insurance Partners
26.4 Million
Policies Sold

we need to analyze threadbare as to which is preferable. To truly rationalize an informed choice, you must learn about them both in greater detail.

What is the National Pension System (NPS)?

It is a unique retirement vehicle created by the Government of India through an Act in the parliament to be regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Though it is voluntary, it has been adopted by most employers for their employees as a tool to secure their retirement with pension drawn from it. The returns for the NPS investment are theoretically higher as funds are invested in market-linked instruments. There are dedicated fund managers to manage the funds, and you can also access your account digitally to gauge the performance.

What is the Public Provident Fund (PPF)?

It was established in 1968 by the National Savings Institute under the aegis of The Ministry of Finance, Government of India. It is a voluntary tax saving investment vehicle that provides fixed income in the form of interest declared by the government quarterly. While you can also plan to grow your wealth through this investment vehicle, it has an initial term of 15 years. You can extend this term further through an application in blocks of 5 years each.

Which is better NPS or PPF?

It is a question many ask as there is not enough clarity about the NPS as compared to PPF, which has been a popular vehicle for tax savers since its inception. Though the focus of NPS is retirement, PPF is not designed to serve your retirement plans exclusively. There is also a horde of other differences, which can be best assessed after learning about NPS in greater detail.

Benefits of NPS

The NPS is a perfect retirement vehicle promising to provide reasonable market generated returns. It is based on a unique Permanent Retirement Account Number (PRAN) allotted to you. Among the several benefits, the primary ones are:

  • Exclusive Tax Savings:Apart from the usual rebate under Section 80C for Rs.1.5L, for NPS there is an additional exemption for another Rs.50000 under Section 80CCD (B).
  • Well Regulated:It is governed by PFRDA under the control of the GOI.
  • Fully Transparent: You can access your NPS account online, make payments and track your investments.

NPS Account Eligibility:

The account has been designed with broad eligibility norms as it is voluntary.

  • Any citizen of India can open an NPS account.
  • Age has to be between 18 and 65 years.
  • You have to comply with KYC norms.
  • You can open only one NPS account.
Save Tax Invest Today Save Tax Invest Today

Types of NPS Accounts:

This is the area that creates a lot of confusion in the mind of NPS account holders. It is important to understand the intricacies so that you do not have any doubts about the efficacy of the system. Since the focus is primarily based on your retirement, you must be clear in your mind as to the outcome of the maturity fund. On maturity, you are allowed to withdraw 60% of the amount free from the Income-tax. The remaining 40% is invested in pension annuities to fund monthly payment of pension. This component is fully taxable and deemed to be income from other sources. To accumulate the maturity amount in NPS, you have to open two accounts.

  • Tier I:You have to deposit a minimum of Rs.1000 into this account to keep it active. The other huge tax benefit is a contribution to this account is additionally exempt up to Rs.50000 under Section 80CCD (1B), over and above Rs.1.5L in Section 80C. On the flip side, there are restrictions for withdrawals from this account subject to terms and conditions.
  • Tier II:You have the option to deposit additional amounts in this account, which does not offer any tax benefits. You can also freely withdraw money from this account, without any hindrance. However, your failure to deposit the initial amount in this account will deactivate it by default.

Minimum amounts in NPS Accounts


Tier I

Tier II

Minimum Account Opening Contribution



Minimum Subsequent Contribution



Minimum contribution per year



Minimum number of contribution in a year



Investment choice in NPS

As a subscriber, you can decide the investment horizon you intend to explore. The fund managers will accordingly manage the funds on your behalf. This is one of the positive features of NPS. On the flip side, it requires a certain amount of acumen to make informed choices, which is hard to come by. Take a look at the provisions.

  • Active Choice:You are free to design your portfolio for which you have three asset classes.
  • Equity (E):This is a high risk and high yield option. You have to limit a 50% investment in this class.
  • Corporate Bonds (C):The investments are directed to fixed income bonds providing moderate yield.
  • Government Securities (G):It is a safe investment vehicle.
  • Auto-Choice – Life-Cycle Fund:In case you do not opt for Active Choice, then this option comes into play. Funds are invested in a pre-determined fashion.
  • Exposure is higher in equity, progressively moderated in high, medium, and low risk.
  • In the middle thirties, the ratio will be 50% in E, 30% in C, and 20% in G.
  • Over that age, the ratio will be gradually tempered until it is 10% in E, 10 % in C, and 80% in G.

Some Salient Features of PPF

The canvas designed for NPS is large as the scale is large, focusing on retirement plans. On the other hand, the scope of PPF is much lower in comparison. It is prudent to check out the salient features of PPF, which will be a fair measure of comparison between the two.

  • Tenure:The initial term of the PPF account is 15 years. After maturity, you can extend further in blocks of 5 years each, with facility for both continuing and discontinuing contribution.
  • Partial Withdrawal:You can withdraw only after the six years of the continued life of the account to the extent of 50% of the closing balance after six years.
  • Interest Rate:It is declared by the GOI quarterly, and the current rate (Jul-Sep) is 7.9% compounded annually.
  • Investment:The minimum contribution per year is Rs.500, while the maximum is Rs.1.5L.
  • Tax Break:It is the best as the EEE regime applies to it. At no point, any of its components is taxable.

Why Choose NPS Over PPF – A Comparison

Let us evaluate them as far as possible.

Comparison between NPS and PPF on Fundamental parameters













Tax impact

Fully exempt



From the above, it is quite evident that while PPF is highly safe, the return on NPS is high – for two reasons. One - because it is invested longer and two because the returns are linked to market forces.

Let us consider the parameters one by one in greater detail.

  • Safety: Unlike the PPF, NPS is regulated by PFRDA which obviates any malpractice. On the other hand, investment in market instruments always carries a high risk, and the yield is dependent heavily on the performance of fund managers. Though you can change your fund manager for underperformance, in the case of PPF, you get a fixed return under guarantee by the GOI, precluding and risk of default.
  • Returns:You are guaranteed returns in PPF based on the quarterly declaration of interest by GOI. Additionally, you get the benefit of annual compounding and are assured of growing wealth. In the case of NPS, the yields will depend on market instruments, and there is no guarantee for sustained good returns.
  • Liquidity:You can partially withdraw from your PPF account only after the end of the 6th  The amount is limited to 50% of the balance in your account at the start of the 7th year. You can, however, avail the loan between the 3rd and 6th year of your account. In the case of NPS, till the time of maturity at 60 years, extendable to 70, you can withdraw from Tier I account up to only 25% and on the grounds like education and marriage of children. Thus it is low for both.
  • Tax Break:This is one area where PPF scores heavily over NPS. In the PPF and NPS both, you get an exemption of Rs.1.5L under Section 80C. While the maturity amount is also tax-free in PPF, 40% of the maturity value in NPS is taxable. Additionally, the fund is locked up in annuities for your monthly pension. While you enjoy the EEE regime in PPF, your NPS investment is not so.

Bottom Line:

The primary reason for investment is to create wealth. You can fruitfully use this wealth to ensure that you can enjoy financial freedom in your twilight years. As the NPS is focused on your retirement benefits, it offers a good option. On the other hand, PPF offers a good option for a guaranteed growing of wealth. Since their primary focus is different, the best course is to invest in both of them in proportions matching your capacity.  However, the final choice is yours.  

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

Income Tax articles

Recent Articles
Popular Articles
Withholding Tax

02 Jul 2024

Withholding tax, also known as Tax Deducted at Source (TDS) in
Read more
Section 80EEA - Deduction for Interest on Home Loan

05 Jun 2024

Section 80EEA of the Income Tax Act provides a significant tax
Read more
Section 80CCE of the Income Tax Act

29 May 2024

Section 80CCE of the Income Tax Act provides taxpayers with
Read more
Section 80CCC of the Income Tax

06 May 2024

Section 80CCC, part of the broader 80C category in the Income
Read more
Income Tax Proof

28 Feb 2024

Income tax proofs play an important role during tax assessment
Read more
Deductions in New Tax Regime Under Union Budget 2023-24
  • 14 Feb 2020
  • 40046
There are no major changes made when it comes to deductions in the new tax regime under the recent Union Budget
Read more
What is Form 16 & How to Download It
  • 17 Jan 2017
  • 215505
Form 16 is a crucial document in India for salaried individuals. Issued by your employer, it acts as a bridge
Read more
Leave Encashment Tax Exemption - Section 10(10AA)
  • 04 Jan 2024
  • 3805
Leave Encashment Tax Exemption under Section 10(10AA) provides a significant financial benefit for employees
Read more
Section 80CCD (1) and 80CCD (2)
  • 28 Mar 2023
  • 11238
The Government of India notifies pension schemes that can help salaried and self-employed individuals to get tax
Read more

Download the Policybazaar app
to manage all your insurance needs.