NPS vs PPF investments: Returns, tax benefits, liquidity and more


When it comes to financial planning and investment, individuals often find themselves faced with a plethora of options. Among these options, the National Pension System (NPS) and the Public Provident Fund (PPF) stand out as popular choices for securing one’s financial future. Both NPS and PPF have their own set of benefits and features, making it essential to understand their nuances before making an informed investment decision. In this article, we’ll look into the benefits of both NPS & PPF and understand them by comparing both avenues.

National Pension System (NPS):

The National Pension System (NPS) is a voluntary, long-term retirement savings scheme introduced by the Government of India. It is designed to provide individuals with a regular income after their retirement. Here’s a closer look at the key features of NPS:

Returns: NPS offers the choice of two investment options: the Auto Choice and the Active Choice. Auto Choice diversifies your investments across various asset classes based on your age, gradually shifting towards safer investments as you approach retirement. The Active Choice allows you to allocate your investments across various asset classes, such as equity, corporate bonds, government securities, and more. This flexibility can potentially lead to higher returns, albeit with increased risk.

To know about the workings of NPS, you can explore an online NPS calculator to get an approximate picture of your returns. But remember the return value will be an estimated return and it will be based on your inputs.

Tax Benefits: NPS offers attractive tax benefits under Section 80C and Section 80CCD(1B) of the Income Tax Act. Investors can claim a deduction of up to ₹1.5 lakh under Section 80C and an additional deduction of up to ₹50,000 under Section 80CCD(1B).

Liquidity: NPS has a relatively lower liquidity compared to some other investment options. Partial withdrawals are allowed under specific conditions such as constructing your home, children’s education, medical emergencies, and a few other conditions. This partial withdrawal option allows you to withdraw 25% of your investment corpus thrice during your NPS tenure with a gap of 5 years. However, the primary purpose of NPS is to secure a regular income during retirement. NPS also has an early exit option after the completion of 10 years of account opening.

Public Provident Fund (PPF):

The Public Provident Fund (PPF) is a popular long-term savings and investment scheme that also comes with tax benefits. It is known for its safety, as it is backed by the Indian government. Let’s delve into the essential aspects of PPF:

Returns: PPF offers a fixed interest rate that is determined by the government every quarter. While this interest rate provides stability, it may not match the potential returns offered by market-linked investments like NPS. However, the fixed interest rate can act as a hedge against market volatility.

To know about the workings of PPF, you can explore an online PPF calculator to get an approximate picture of your returns. But remember the return value will be an estimated return and it will be based on your inputs.

Tax Benefits: Similar to NPS, PPF also offers tax benefits under Section 80C of the Income Tax Act. The entire investment, along with the interest earned, is exempt from taxation. This makes PPF an attractive option for risk-averse investors looking for tax-efficient savings.

Liquidity: PPF has a lock-in period of 15 years. However, partial withdrawals are allowed from the 7th year onwards. This makes PPF relatively more liquid compared to NPS. Moreover, PPF accounts can be extended in blocks of 5 years after the initial maturity period, providing additional flexibility.

Comparing NPS and PPF:

Risk and Returns: NPS has the potential to offer higher returns due to its exposure to equity and other market-linked instruments. However, this also comes with higher risk. PPF, on the other hand, provides stable but lower returns.

Tax Benefits: Both NPS and PPF offer tax benefits, making them efficient tools for tax planning. The choice between the two depends on an individual’s risk appetite and investment preferences.

Liquidity: PPF offers greater liquidity due to its shorter lock-in period and provisions for partial withdrawals. NPS, being a retirement-focused instrument, is less liquid in comparison.


Choosing between NPS and PPF depends on your financial goals, risk tolerance, and investment horizon. NPS is suited for those willing to take on market risk for potentially higher returns and long-term retirement planning. PPF, on the other hand, is ideal for risk-averse investors seeking tax-efficient savings with the benefit of stable returns. It’s important to carefully evaluate your financial situation and consult with a financial advisor before making a decision that aligns with your investment objectives. Remember, a diversified investment portfolio could also include a combination of both NPS and PPF to leverage their respective advantages.