Retire a Crorepati by 60: Choose the Best - NPS or PPF - in the Next 30 Days to Maximize Your ₹1.5 Lakh/year Tax Savings

Investing your money wisely and strategically accumulating a retirement fund worth crores is crucial to successful financial planning. The National Pension System and the Public Provident Fund are among India's most preferred long-term savings instruments. This leads to a discussion between NPS vs PPF. 

NPS provides the benefit of returns linked to the market, as the investment is a mix of equity and debt. However, it comes with risk compared to PPF, where your investment has assured returns with full capital protection.

While both schemes provide tax benefits and facilitate long-term wealth accumulation, they differ sharply in terms of their structure and potential returns. Now let us explore their characteristics and advantages and how each would suit different investors in the quest for a crore or more at their retirement.

What is NPS?

The National Pension System (NPS) is a voluntary long-term retirement savings scheme initiated by the Government of India. The PFRDA (Pension Fund Regulatory and Development Authority) regulates it and focuses on providing financial stability post-retirement through a combination of equity and debt investments.

Under NPS, individuals can subscribe to a pension account, wherein professional fund managers handle their long-term investments. The scheme is open to salaried employees and self-employed individuals, making it a flexible option for retirement planning. It has a tiered structure, with Tier I as the primary pension account and Tier II as an optional savings account that allows withdrawals at any time.

One of the unique aspects of NPS is that a portion of the accumulated corpus must be used to purchase an annuity upon retirement, ensuring a steady post-retirement income. Since NPS investments are market-linked, returns vary depending on the performance of the equity and debt markets.

Features and Benefits of NPS

NPS has several features that make it an attractive investment for retirement savings. The scheme offers long-term growth potential, flexibility in investment choices, and tax-saving benefits.

1. Potential for Higher Returns

One of the biggest advantages is the NPS returns. This scheme has the potential for higher returns compared to fixed-income instruments. Investors can benefit from long-term capital appreciation since some funds are invested in equity. Unlike traditional savings schemes, where returns are fixed, NPS provides the opportunity for wealth accumulation through compounding and market-linked growth.

2. Flexible Investment Choices

NPS allows investors to choose how their money is allocated between asset classes. Under the Active Choice option, individuals can manually allocate funds among equity, corporate bonds, government securities, and alternative assets. Alternatively, the Auto Choice option adjusts allocations based on the investor’s age, reducing equity exposure as they approach retirement. This flexibility ensures that investors tailor their portfolios according to their risk appetite.

3. Attractive Tax Benefits

NPS offers substantial tax savings under various sections of the Income Tax Act. Contributions up to ₹1.5 lakh per year qualify for deductions under Section 80C, while an additional ₹50,000 deduction is available under Section 80CCD(1B). This makes NPS one of the most tax-efficient retirement savings options. Up to 60% of the corpus is tax-free at the time of withdrawal, while the remaining 40% must be utilised to purchase an annuity, ensuring post-retirement income security.

4. Low Fund Management Charges

NPS has some of the lowest fund management charges compared to other investment options. This means that more of the investor’s funds remain invested, leading to better long-term returns. Lower expenses enhance the compounding effect, helping investors grow their retirement corpus more efficiently.

5. Retirement Security with Annuity Income

NPS ensures that investors receive a steady income after retirement by mandating the purchase of an annuity. At maturity, at least 40% of the accumulated corpus must be used to buy an annuity, which provides a guaranteed pension for life. This ensures financial stability during retirement, supplementing other sources of income.

6. Partial Withdrawals for Emergencies

While NPS is primarily designed as a long-term savings instrument, it allows partial withdrawals under specific conditions. Investors can withdraw up to 25% of their contributions for expenses related to higher education, medical emergencies, home purchases, or business start-ups. This feature provides financial flexibility without compromising long-term wealth accumulation.

What is PPF?

The Public Provident Fund (PPF) is a government-backed savings scheme that provides long-term financial security with guaranteed returns. It was introduced in 1968 by the Government of India to encourage individuals to build a retirement corpus while enjoying tax benefits. PPF is one of the safest investment options as it is not market-linked, meaning that returns remain stable irrespective of economic fluctuations.

PPF accounts can be opened by any Indian citizen at banks or post offices with a minimum annual deposit of ₹500 and a maximum limit of ₹1.5 lakh. The scheme has a 15-year lock-in period, with an option to extend in blocks of five years. The government declares the interest rate every quarter, ensuring consistent returns. Since the PPF pension scheme falls under the Exempt-Exempt-Exempt (EEE) tax category, contributions, interest earned, and maturity proceeds are all tax-free, making it an attractive choice for risk-averse investors.

Features and Benefits of PPF

PPF is a long-term investment scheme that combines safety, tax efficiency, and guaranteed returns, making it a preferred choice for conservative investors. Below are some of the key features and benefits of investing in a PPF account:

1. Guaranteed and Risk-Free Returns

The government backs PPF, which offers stable and guaranteed returns. Unlike market-linked investments, which fluctuate in returns, PPF provides a fixed interest rate announced every quarter. This makes it a reliable option for individuals who prefer security over high-risk investments.

2. Long-Term Wealth Accumulation

The 15-year lock-in period ensures disciplined savings, allowing individuals to accumulate substantial wealth over time. Since the scheme benefits from the power of compounding, long-term investors can generate a significant corpus. Additionally, after maturity, investors can extend their PPF account in five-year blocks, further growing their savings.

3. Tax-Free Earnings and Withdrawals

One of the biggest advantages of PPF is its tax-free status under the Exempt-Exempt-Exempt (EEE) category. Contributions qualify for deductions up to ₹1.5 lakh under Section 80C of the Income Tax Act. The interest earned, and the final maturity amount are completely tax-free, ensuring maximum wealth retention for investors.

4. Flexible Contributions

PPF offers deposit flexibility, allowing individuals to contribute between ₹500 and ₹1.5 lakh per year. Deposits can be made in a lump sum or up to 12 instalments in a financial year, making them a convenient savings tool for individuals with varying income levels.

5. Loan Facility Against PPF

One key difference between NPS and PPF is that the latter allows account holders to take a loan against their balance between the third and sixth year of investment. The loan amount can be up to 25% of the balance at the end of the second year preceding the loan application year. The loan must be repaid within 36 months at a lower interest rate than personal loans, making it a cost-effective borrowing option.

6. Partial Withdrawals for Financial Needs

Although PPF has a long lock-in period, partial withdrawals are allowed from the seventh year onwards. Account holders can withdraw up to 50% of the balance from the fourth year preceding the withdrawal request or at the end of the previous year, whichever is lower. This feature provides liquidity for financial emergencies while ensuring long-term savings remain intact.

7. Investment Security with Government Backing

Since PPF is a government-backed scheme, it carries zero risk of capital loss. Unlike market-based investments such as stocks or mutual funds, where returns can be volatile, PPF ensures 100% capital protection. This makes it ideal for risk-averse investors seeking a secure and stable retirement fund.

Understanding the Difference Between NPS and PPF

So, are you eager to learn about the difference between NPS and PPF? Check out the detailed table below:

NPS vs PPF: Which is Better for You?

When choosing between NPS (National Pension System) and PPF (Public Provident Fund), the decision largely depends on your financial goals, risk tolerance, and the time horizon for your investments. Both offer significant benefits, but their features cater to different needs. Here's a breakdown of their key aspects to help you make an informed choice.

Safety and Risks

As a market-linked investment, NPS offers higher growth potential but with some associated risks. The funds are invested in equity, corporate bonds, and government securities, so the NPS returns fluctuate with market performance.

PPF is a risk-free, government-backed scheme. The principal and interest are fully protected, making it a secure option for risk-averse investors.

Returns

The returns from NPS are market-driven, with the potential to earn 8%—10% per annum, depending on the asset allocation and market conditions. This makes it suitable for those willing to accept some risk for potentially higher returns.

PPF provides fixed, guaranteed returns, typically in the range of 7%- 8%. The returns are not affected by market fluctuations, ensuring consistent growth. However, they have more limited upside potential than NPS.

Liquidity

NPS is designed for retirement savings and has a long lock-in period. Partial withdrawals are allowed after 3 years, but you can only access your corpus fully after retirement. Additionally, 40% must be used for annuity at retirement, and the remaining 60% can be withdrawn.

PPF has a 15-year lock-in, but you can withdraw partially after 6 years. A loan facility is available from the 3rd to 6th year, making PPF more liquid than NPS, especially in emergencies.

Taxation

Contributions up to ₹1.5 lakh qualify for tax deductions under Section 80C, and you can claim an additional ₹50,000 under Section 80CCD(1B). The 60% corpus withdrawn at retirement is tax-free, but the annuity income is taxable.

PPF falls under the Exempt-Exempt-Exempt (EEE) category, meaning contributions up to ₹1.5 lakh are tax-deductible, the interest earned is tax-free, and the maturity amount is tax-exempt.

Example: Rahul’s NPS vs. PPF Investment

Rahul, a 30-year-old professional, wants to build a strong retirement corpus and decides to invest ₹1.5 lakh per year. He considers two options: PPF and NPS. With PPF, offering a fixed 7.1% interest rate, his investment grows to ₹1.54 crore after 30 years—completely tax-free. On the other hand, NPS, with an average 10% return, builds a much larger corpus of ₹3.25 crore. At retirement, 60% (₹1.95 crore) is tax-free, while 40% (₹1.3 crore) is used for a pension annuity. While PPF is safer, NPS generates significantly higher wealth, making Rahul a crorepati faster. Since NPS also provides an extra ₹50,000 tax deduction, Rahul chooses it for long-term gains. If you aim for a higher retirement corpus, decide within the next 30 days to maximize your ₹1.5 lakh tax savings!

Conclusion

So, NPS or PPF which is better? Both options have unique advantages. NPS is ideal for those seeking higher returns and willing to accept market risks, especially for retirement planning. It offers tax benefits and the potential for long-term growth. On the other hand, PPF is the perfect choice for investors looking for a safe, risk-free investment with guaranteed returns and the added benefit of tax exemptions. If you plan for the future and want to balance growth and security, consider combining NPS and PPF to meet your financial goals.

FAQs

1. What is the difference between NPS vs PPF vs EPF? 

NPS, PPF, and EPF are government-backed savings schemes that cater to different financial goals. NPS offers market-linked returns for retirement planning, while PPF provides a risk-free, fixed-return option. EPF, on the other hand, is primarily for salaried employees, offering fixed returns and tax benefits on contributions and withdrawals.

2. Can I have both NPS and PPF accounts? 

Yes, you can invest in both NPS and PPF simultaneously. NPS can be used for retirement savings, while PPF provides a safe, tax-free return option for long-term goals.

3. Which is better for tax-saving: NPS or PPF? 

Both options offer tax benefits, but NPS offers additional tax deductions of up to ₹50,000 under Section 80CCD(1B). PPF also provides tax deductions of up to ₹1.5 lakh under Section 80C, along with tax-free returns.

4. How long is the lock-in period for NPS and PPF? 

NPS has a long-term lock-in period until retirement, with limited partial withdrawals after 3 years. PPF has a 15-year lock-in, but you can make partial withdrawals after 6 years, offering more liquidity.

Written by Bruhadeeswaran R.

Bruhadeeswaran R. is a B2B content expert with 14+ years of experience, specializing in National Pension System (NPS), PAN, DPI, eSignPro, and Central KYC. As Editor and Lead Content Writer at Protean eGov Technologies, he simplifies complex e-governance topics through engaging blogs, reports, and digital content.