NPS vs PPF
Difference between NPS and PPF
Are you facing the dilemma of making an investment in the PPF or NPS? Many people face the issue of which of these schemes to invest in, to help you in your decision let’s understand the difference between them.
Particulars | NPS | PPF |
Eligibility | Indian citizens and NRIs are allowed to open accounts | Indian citizens only are allowed to open accounts |
Minimum age | 18 to 60 years | Can be opened even in the name of a minor with either one of the parents as custodians |
Rate of returns | 10.00% to 12.00% and this is dependant on the market situation | 8.60% and is fixed |
Contribution for a year | Minimum of Rs. 6, 000 Maximum has no limit | Minimum of Rs. 500 Maximum of Rs. 1 lakh |
Tax on contributions | Contributions made to NPS is deductible from the total income | Tax free |
About NPS
Initiated in the year 2004, by the Government of India the National Pension System, this scheme is available for all citizens of the country, who will require some savings for the life after requirement.
The NPS is launched in 2 parts, Tier 1 and Tier 2, under the Tier 1 scheme is meant for all government employees, and will contribute 10% of the basic pay, dearness pay and dearness allowance earned will be added to an NPS account each month and the government will also contribute the same amount as well.
For Tier 2 scheme each individual can open an account under this pension scheme and will make contributions to the same, they will not receive additional contributions from the government.
For Tier 1 accounts:
- The minimum contribution while opening this account should be at least Rs. 500 and multiples thereof.
- At the end of the financial year the minimum balance should be a sum of Rs. 6000.
- And a minimum of 1 contribution should be made in fiscal year.
For Tier 2 accounts:
- The minimum contribution while opening this account should be at least Rs. 1000, the smallest contribution should be a minimum of Rs. 250.
- At the end of the financial year the minimum balance should be a sum of Rs. 2000.
- And a minimum of 1 contribution should be made in fiscal year.
About PPF
A government small savings scheme, the Public Provident Fund provides security of your investment and also provides high interest rates. A minimum investment of Rs. 500 and a maximum of Rs. 1 lakh per annum, can be made into a PPF account, for a term of 15 years. This investment will now earn you an interest of 8.70% and will be compounded yearly.
A PPF account of an individual, will give them a few benefits:
- The individual can make small investments, for a long period of time.
- The entire amount in a PPF account, inclusive of interest it earns will be tax free, and wealth tax as well will not be charged.
- An individual will get a tax rebate as per section 80C of the Income Tax Act of 1961.
All plans and policies you decide to invest in need to be reviewed more than once, as investing your hard earned money is a big decision to make. Checking on factual data, investments for the year, returns you will receive, your income in hand after the investments made. As you are the investor, it is always good to look at your savings as well as your future plans, and what is the intention with which you wish to save your money.
FAQs on NPS vs PPF
- Who can invest in PPF?
PPF investments are available to all Indian citizens. A citizen can possess two PPF accounts only if the second account is in the name of a minor. A PPF account cannot be opened by NRIs or HUFs.
- Who is eligible to invest in NPS?
Any Indian citizen who is between the ages of 18 and 60 years is eligible to invest in NPS. The account holder must adhere to the KYC regulations and must be of sound mind and not an undischarged insolvent.
- Which financial instrument between NPS and PPF will be liable for debts?
Since PPF has fixed returns set by the government, it cannot be liable for debts.
- Which investment option, NPS or PPF, yields higher returns?
Yes, you can invest in both PPF and NPS if you want to make more substantial contributions towards your retirement goal. PPF investments can be used as a fixed income component of a portfolio, while NPS investments can provide market-linked returns.
- Are NPS accounts tax-free when they mature?
NPS subscribers have the option of making a 40% lump sum withdrawal at maturity that is tax-free. The maximum lump sum withdrawal is 60%, and any amount over 40% will be subject to taxation.
- How does NPS differ from PPF?
Both PPF and NPS are supported by the government. PPF provides a guaranteed return of 7.1%, but it is subject to change at the discretion of the Finance Ministry. The return on NPS, on the other hand, is market-linked. NPS funds have generated returns of 9% to 11% in the recent past.
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