NPS V/S PPF - A Comparative Analysis

One of the legacies that we inherit from our parents - as far as Investments and Tax Savings are concerned - is Public Provident Fund. One of the most prolific tool of investments in India, it’s returns has been more or less stable in the range of 8-9.5%. But as Shri Krishna said in Gita- Only things constant is Change, similarly with the changing times and economic conditions, government plans to provide alternate to this avenue in the form of National Pension Scheme i.e. NPS. Government is pushing it in big way due to following reasons -

1. To mobilise small investors’ money to equity market
2. To mobilise money to Corporate Bonds.
3. To promote non- guaranteed pension culture

So let’s compare them from a small investor's point of view.

(Its recommended to go through this article on National Pension Scheme to get a better idea about the same)

1. Risk and Returns -
1. Returns in NPS may wary from 10-14% depending on your exposure across different categories available under NPS. Similarly risk level also depends on your relative exposure.
2. PPF - Returns vary from 8-9.5%. Almost risk free as guaranteed by government.
2. Liquidity -
1. NPS - Investments are practically blocked till investor attains 60 years of age, even after that you can withdraw only 40% of the money as rest of money has to used to buy some pension plan. If you want to withdraw before 60 years of age , you can withdraw only upto 20% of the money.
2. PPF - Money can be withdrawn 15 years after the start of PPF fund.
3. Taxation -
1. Lumpsum investments upto 2 lakhs are eligible for Tax Rebate (i.e amount invested is deductible from income for calculating taxable income) Salaried people can also avail some further deduction by investing 10% of their Basic and DA into NPS.All the appreciation earned on the investments is taxable, unlike PPF where appreciation i.e. interest is tax free
2. Investments upto 1.5 lakhs under PPF are eligible for Tax Rebate.
4. Investment Size -
1. While NPS don’t have any upper limit on investments , PPF don't allow more than 1.5 lakh investments in one financial year.

Hence whether NPS will prove to be a strong alternative to PPF or not will depend on whether small investors are ready to sacrifice the relative pros of PPF for pros and cons of NPS.

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