NPS Vs PPF: Comparison, Return Rates & Which is Better

  • Author: Saphi Evangelarity Syiem
  • 5 min read
  • November 22, 2022
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“NPS Vs PPF: Which is a better investment?” is a question most of us find ourselves asking. The National Pension System (NPS) is a market-linked pension savings vehicle established by the Indian government. The returns of the NPS, like those of mutual funds, are determined by the performance of pension fund management and the market. PPF, or Public Provident Fund, is a government-backed savings vehicle with quarterly fixed returns determined by the government. The PPF is not only for pensions or retirement; it may also be utilized for other reasons. The NPS, on the other hand, is a savings vehicle designed specifically for retirement. 

Also, read PPF: Eligibility, Tax Benefits, Interest Rate, How to Open Online, Withdrawal.

Criterion

PPF

NPS

Safety

High

Low

Returns

Moderate

High*

Liquidity

Low

Low

Taxation

Fully exempt

Low**

Comparison of NPS and PPF Returns

  • Security: Because the NPS is not a fixed-return instrument, it is not “safe.” However, in a larger sense, it is heavily controlled by the PFRDA (Pension Fund Regulatory and Development Authority) and is unlikely to encounter significant difficulties from fraud/malpractice. The NPS returns are determined by the performance of Pension Fund Managers, and you can change managers if you are dissatisfied with your current manager’s performance. The government determines the fixed returns on the PPF. The government also makes use of PPF funds. As a result, there is almost little chance of default.
  • Returns: The PPF has a set rate of return. Every quarter, the precise rate is determined. The first table is a timeline of PPF rates

Period

Rate

July – September 2022

7.1%

April – June 2022

7.1%

January – March 2022

7.1%

October – December 2021

7.1%

July – September 2021

7.1%

April-June 2021

7.1%

January-March 2020

7.1%

October – December 2020

7.1%

July – September 2020

7.1%

April – June 2020

7.1%

January – March 2020

7.9%

October – December 2019

7.9%

July – September 2019

7.9%

April-June, 2019

8.0%

January-March, 2019

8.0%

October-December, 2018

8.0%

July – September 2018

7.6%

April – June 2018

7.6%

January – March 2018

7.6%

October – December 2017

7.8%

July – September 2017

7.8%

April – June 2017

7.9%

January – March 2017

8.0%

October – December 2016

8.1%

July – September 2016

8.1%

April – June 2016

8.1%

April 2015 – March 2016

8.7%

April 2014 – March 2015

8.7%

April 2013 – March 2014

8.7%

April 2012 – March 2013

8.8%

December 2011 – March 2012*

8.6%

April 2011 – December 2011

8.0%

April 2010 – March 2011

8.0%

April 2009 – March 2010

8.0%

April 2008 – March 2009

8.0%

Source: NSS

The National Pension System (NPS) returns are determined by the performance of NPS funds. The performance of NPS Equity Funds is shown in the table below. It should be noted that an NPS allows for a maximum equity allocation of 75%. The remaining funds can be invested in either NPS Corporate Bond Funds or NPS Government Bond Funds. You may get the most recent returns for these here.

Pension Fund

Returns (1 year)

Returns (3 years)

Returns (5 years))

SBI Pension Funds Pvt. Ltd

6.30%

14.80%

51.80%

UTI Retirement Benefit Fund

5.70%

2.40%

6.63%

Kotak Mahindra Pension Fund Ltd.

10.40%

25.40%

57.30%

ICICI Pru. Pension Fund Mgmt Co. Ltd.

6.70%

14.70%

50.10%

LIC Pension Fund Ltd.

4.70%

8.20%

41.50%

HDFC Pension Management Co. Ltd.

7.70%

9.00%

Birla Sun Life Pension Management Ltd.

9.00%

0.30%

17.60%

  • Liquidity: The PPF has a 15-year term. Partial withdrawals are permitted after the end of the sixth fiscal year, i.e. the beginning of the seventh fiscal year from the year of account establishment. However, it is recommended that one consult the bank’s website to establish whether partial withdrawals are permitted. Some banks, such as ICICI and Axis, permit withdrawals after 5 years, while others allow withdrawals after 7 years (SBI and HDFC). The maximum withdrawal amount each fiscal year is the lesser of the following: 50% of the account balance at the end of the fiscal year before the current year, whichever is greater, or 50% of the account balance after the prior fiscal year’s fourth fiscal year. From the third to the sixth year following account establishment, you can also acquire a loan against the amount in your PPF account. The maximum loan amount available against PPF accounts is 25% of the balance at the close of the second fiscal year before the year in which the loan was requested. The NPS peaks at the age of 60, although it can be extended until the age of 70. Under the ‘partial withdrawal’ provision, you can take up to 25% of your contributions three years after starting the account. You are only allowed three such withdrawals from the NPS. Withdrawals are permitted for reasons such as marriage or further education for children, the building or purchase of a home, or treatment for ailments such as cancer and renal failure.
  • Tax breaks: PPF account investments up to Rs 1.5 lakh per year qualify for a tax credit under Section 80 C of the Income Tax Act of 1961. The interest on the PPF is likewise tax-free, but it must be reported on the yearly income tax return. The PPF maturity amount is likewise tax-free. In other words, PPF receives tax status that is ‘exempt, exempt, exempt.’ NPS investments are tax-deductible up to Rs 1.5 lakh under Section 80 C. Such donations, however, cannot exceed 10% of your earnings. The NPS returns are likewise tax-free as long as the funds are kept in the HDFC account. When the NPS matures, 40% of the amount can be taken tax-free. Another 40% must be spent to purchase an annuity (a monthly income). This annuity is taxable. The remaining 20% can be taken after taxes or used to purchase an annuity.
  • Retirement Concentration: The PPF can be used to save for retirement, although it is not designed for that purpose. For example, you can create a PPF account for your minor kid, which will mature when he or she reaches the age of majority or begins working. An NPS account may only be started by those over the age of 18, and it only matures when they reach the age of 60. In other words, the NPS lock-in period can be significantly extended.

Conclusion?

Sure, NPS and EPF are good investment options. But have you ever wished to put your money into something more reliable and with higher returns than NPS and EPF? Remarkably, real estate is one such alternate investment that offers the same benefits but in a more efficient way! Long-term stability, assured profitability, capital appreciation, and large incentives are all provided by real estate.

One of the top real estate investment platforms, Assetmonk, allows you to engage in a variety of commercial and residential real estate assets through fractional ownership and crowdfunding. Furthermore, the IRRs range between 14% and 21%.

NPS Vs PPF: Comparison, Return Rates & Which is Better FAQs

Each has distinct advantages and may be used to attain long-term goals, the most important of which is retirement. Rather than attempting to determine which is superior, make the greatest use of both PPF and NPS in collecting a significant corpus over the long run.

In comparison to other investment alternatives, NPS carries minimal risk. Furthermore, because it is a government-owned program, the risk cap on stocks varies from 50% to 75%. Investors under the age of 50 have a 75% risk exposure, which decreases by 2.5% by the time they reach the age of 60%.

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