When planning for retirement or long-term savings, National Pension Scheme (NPS) and Public Provident Fund (PPF) are two of the most popular government-backed options. Both have distinct features and benefits tailored to specific financial goals.

Key Features

| Feature | PPF | NPS |
|---------------------------|--------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| Who can invest? | Indian residents (minors via guardians). NRIs and HUFs are not eligible. | Indian citizens aged 18-70 years, including NRIs. |
| Interest Rates | ~7.1% p.a. (set by the government). | Market-linked: ~9-12% p.a. depending on asset allocation. |
| Maturity Period | 15 years (extendable in 5-year blocks). | Until the age of 60 (option to extend to 70 years). |
| Investment Limits |500 minimum annually; maximum1.5 lakh/year; up to 12 contributions/year allowed. |6,000 minimum annually; no upper limit, but 10% of salary for employees or 20% of gross income for self-employed. |
| Tax Benefits | Up to1.5 lakh under Section 80C; returns and withdrawals are tax-free (EEE category). | Up to1.5 lakh under Section 80CCD(1) +50,000 under Section 80CCD(2) (total2 lakh). |
| Premature Withdrawal | Allowed after 5 years under specific conditions (education, medical emergencies, residency change). | Partial withdrawal allowed after 10 years for specific purposes. |
| Investment Control | None, fully managed by the government. | Flexibility to allocate funds between equity, government bonds, and fixed-income instruments. |
| Returns | Stable, government-backed. | Market-linked, potential for higher returns. |
| Annuity Requirement | No. | Yes, minimum 40% of the corpus must be used to purchase an annuity. |

Comparison Parameters

• Risk & Safety
• PPF: Risk-free, backed entirely by the government.

• NPS: Market-linked, slightly riskier but regulated by PFRDA (Pension Fund Regulatory and Development Authority) to ensure transparency and security.

• Returns

• PPF: Stable returns around 7-8% p.a..

• NPS: Higher potential returns, up to 9-12% p.a., due to equity exposure.

• Liquidity

• PPF: Partial withdrawals after 5 years; loans allowed within certain limits.

• NPS: Partial withdrawals after 10 years; more liquidity options than PPF.

• Taxation

• PPF: Falls under the EEE (Exempt-Exempt-Exempt) category; contributions, interest, and maturity proceeds are tax-free.
• NPS: Contributions and up to 60% of the corpus at maturity are tax-free. However, annuity purchases are taxable.

Pros and Cons

PPF

• Pros:
• Stable and risk-free.
• Tax-free returns.
• No mandatory annuity purchase.
• Cons:
• Lower returns.
• Limited liquidity.
• Lock-in of 15 years.

NPS

• Pros:
• Higher potential returns.
• Flexible investment options.
• Higher tax-saving limit (up to2 lakh).
• Cons:
• Market risks due to equity exposure.
• Taxable annuity at maturity.
• Mandatory annuity purchase.

Which is Better?

• Choose PPF if:
  You want a risk-free, long-term savings option with stable returns, particularly for goals like children’s education or marriage.

• Choose NPS if:
  Your goal is retirement planning, and you are comfortable with moderate market risks for potentially higher returns.

Summing it up

Both NPS and PPF serve different purposes despite overlapping in retirement planning. Your choice should depend on your risk appetite, financial goals, and time horizon. For diversified savings, consider investing in both to balance security (PPF) and growth potential (NPS).

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