NPS vs PPF: Which Option is Better for Investment

Understand the key difference between NPS and PPF.
4 mins
6 July 2024

Both National Pension Scheme (NPS) and Public Provident Fund (PPF) are saving schemes. NPS is a market linked scheme, so its returns are based on market conditions. On the other hand, PPF gives fixed returns, set by government every quarter. PPF is not just a pension or retirement saving scheme, it can be used for other purpose. Unlike PPF, NPS is specifically a retirement saving scheme.

This article breaks down both options in simple terms, helping you pick the best investment for your future.

What is NPS?

The National Pension Scheme is a government-backed retirement program available to employees across public, private, and unorganised sectors (excluding the armed forces).

Under this scheme, individuals can consistently invest in a pension account throughout their employment. Upon retirement, a portion of the accumulated funds can be withdrawn as a lump sum, while the remaining amount is used to receive a regular pension.

Here are some key features of NPS:

  • Market-linked investment scheme
  • Tier-I account with mandatory contributions
  • Tier-II account with voluntary contributions
  • Partial withdrawal allowed after 60 years
  • Tax benefits on contributions and maturity amount

Who can invest in NPS?

Any Indian citizen between 18 and 70 years old can open a National Pension System (NPS) account. To do so, they need to follow KYC norms and should not be an insolvent or of unsound mind.

What is PPF?

Established in India in 1968, the Public Provident Fund (PPF) serves the purpose of gathering modest contributions for investment and returns. It can be seen as an investment tool that allows individuals to build up retirement funds while simultaneously minimising annual taxes. If someone is seeking a secure investment avenue to save on taxes and secure assured returns, opening a PPF account is a wise choice.

Introduced in India in 1968, the Public Provident Fund (PPF) aims to collect small contributions for investment and returns. It serves as an investment tool, enabling individuals to accumulate funds for retirement while minimising annual taxes.

Here are some key features of PPF:

  • Minimum investment: Rs. 500 per year
  • Maximum investment: Rs. 1.5 lakh per year
  • Investment period: 15 years
  • Interest rate: 7.1% per annum (compounded annually)

Who can invest in PPF?

Any India citizen can open a PPF account. A person can have only one PPF account, except if the second one is for a minor. Non-Resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not eligible to open PPF account.

While NPS and PPF are excellent for long-term goals, fixed deposits offer the flexibility to align with a wide range of financial needs. FD come with tenures ranging from a few days to several years. This allows you to tailor your investments to specific goals. Whether you are saving for your child's education, a dream vacation, or any other goal, an FD can be a smart way to grow your money with guaranteed returns.

NPS and PPF: Key differences

1. Safety

While the NPS doesn't offer guaranteed returns like PPF, it is still a secure option. NPS is regulated by PFRDA (Pension Fund Regulatory and Development Authority), minimising the risk of fraud or mismanagement. However, as it invests in market-linked assets, its returns fluctuate based on how those assets perform.

PPF, on the other hand, provides fixed returns set by the government. Since the government backs this scheme, the risk of default is practically non-existent. However, the returns can be lower compared to NPS.

2. Liquidity

NPS and PPF both have lock-in period, yet they provide investors with the option of partial withdrawals.

NPS allows partial withdrawals from the account after 3 years. You can request withdrawals of up to 25% of the total contributions, but these are only allowed for specific reasons. These reasons include financing the higher education or marriage of children, acquiring or constructing a residential house or medical expense.

On the other hand, PPF also allows partial withdrawals, but the option becomes available from the 7th year onward. Full withdrawal is not permitted from a PPF account. You can withdraw up to 50% of the balance at the end of the 4th preceding year or the end of the preceding year, whichever is less.

Additionally, PPF offers a loan facility between the 3rd and 6th financial year after opening the account.

3. Taxation

Contributions of up to Rs 1.5 lakh per annum in the PPF account qualify for a tax deduction under Section 80C of the Income Tax Act, 1961. The interest accrued in the PPF is exempt from tax, though it needs to be declared in the annual income tax return. Furthermore, the maturity amount from the PPF is also tax free, embodying the 'exempt, exempt, exempt' tax treatment.

In contrast, investments in the NPS are tax-deductible up to Rs 1.5 lakh under Section 80C, with the condition that NPS contributions cannot exceed 10% of one's salary. Additionally, an extra tax deduction can be claimed under Section 80CCD (1B) for NPS. Upon maturity, 40% of the NPS balance can be withdrawn tax-free, while another 40% must be used to purchase an annuity, subject to taxation.

NPS vs PPF vs Bajaj Finance FD




Bajaj Finance FD


After attaining 60 years of age.

Has a fixed maturity period of 15 years, extendable in blocks of 5 years.

12 months to 60 months


Generally, ranges between 9% to 12%

7.1% p.a. (as of 1, January 2024)

Up to 8.65% p.a.

Minimum investment

Rs. 1,000

Rs. 500

Rs. 15,000

Maximum investment

No upper limit

Rs. 1.5 lakh in a financial year

Rs. 5 crore



Both NPS and PPF offer unique features for savings, with NPS focusing on retirement and PPF serving broader purposes. Each has its advantages, and the choice depends on individual preferences and financial goals. Remember to consider factors like safety, liquidity, and taxation when making your decision.

Frequently asked questions

Can I have both NPS and PPF?

Yes, you can invest in both the National Pension System (NPS) and the Public Provident Fund (PPF). They are complementary retirement savings options, and investing in both can diversify your retirement portfolio.

Which is better for retirement planning, NPS or PPF?

NPS may be better for those seeking higher returns and willing to take moderate risks, as it invests in equities and debt. PPF is ideal for risk-averse individuals preferring a fixed return. The choice depends on your risk tolerance and financial goals.


As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.