NPS vs PPF- What should you choose next?

difference between NPS vs PPF

An investment made for the future reaps various benefits like a handful amount of money after a particular time period, earned interest on the principal amount, tax benefits, etc. There are several options available to invest in like Systematic Investment Planning (SIP), Fixed Deposit(FD), Recurring Deposit (RD), Public Provident Fund (PPF) or National Pension Scheme (PPS). Out of the given options, PPF and NPS are specially made to build good saving habits and retirement corpus.

In this blog, we will talk about PPF and NPS and the difference between both of them.

What is PPF or Public Provident Fund?

PPF or Public Provident Fund allows an individual to save a part of his/her income annually to build a retirement corpus. Interest is offered to the users on the deposited amount. Opening a PPF account also gets the account holder some tax-saving benefits. Owing to these tax-saving benefits, the account holder can claim tax deductions of up to Rs. 1.5 lakh under section 80C of the Income Tax Act. The purpose of such a scheme is to encourage the saving habits of an individual. Also, such a scheme is great for those who don’t fall under the Employee Provident Fund Organization (EPFO) scheme.

The PPF can further be explained as-

  • An investment option with a lock-in period of 15 years
  • One can withdraw the partial amount from PPF but only after 6 financial years
  • Premature closure of PPF account is allowed, but only under a few circumstances
  • The minimum deposit value in a year is Rs. 500 whereas the maximum deposit value is Rs. 1.5 lakh
  • As of August 2021, the interest rate on PPF is 7.1% per annum
  • A PPF account holder can invest a maximum of 12 times in a financial year
  • The interest on the PPF account is calculated annually
  • A PPF account holder can take a loan against the PPF balance

Who can invest in a PPF account?

Listed below are the persons who can invest in PPF account-

  • Only Indian citizens are eligible to open a PPF account
  • An Indian citizen settled abroad can continue operating his/her PPF account
  • Parents/guardians on behalf of their minor children can open a PPF account


Banks are the only medium through which an individual can open a PPF account; however, the amount will still go to the government and not to the particular bank

Documents Required to Open a PPF Account

Given below are the documents required to open a PPF account-

Documents to open PPF account
PPF account opening form- Form A
KYC documents like Aadhaar card, PAN card, Voter ID card etc
Proof of Address
Passport size photograph
Nomination form- Form E
PAN Card

What are the Limitations of the PPF Account?

Investing in a PPF account is one of the ways to save for the future; however, it still has a number of limitations listed below-

  • PPF account comes with a lock-in period of 15 years. As a result, it is difficult to withdraw the complete balance from the account
  • To withdraw a partial amount from the account, one needs to first complete 5 financial years
  • Premature closure of account is allowed but that can only happen by adhering to certain rules & restrictions
  • PPF does not offer competitive interest rates
  • A joint PPF account is not allowed
  • The maximum amount an individual can contribute to the PPF account is Rs. 1.5 lakh only
  • An account holder can contribute a maximum of 12 times in a financial year
  • Only Indian citizens can open a PPF account. NRIs and Hindu Undivided Families cannot open PPF account
  • Premature account closure is allowed in case of educational and medical emergencies. Valid documents and proof are required to close the PPF account

What is NPS or National Pension Scheme?

NPS means National Pension Scheme. It is a scheme specially meant for working individuals who would want to create a retirement corpus. The NPS scheme was introduced by the central government of India by keeping the financial requirements of the senior citizens during the post-retirement phase.

Under the NPS scheme, a regular investment has to be made by the individual, the investment, in turn, is invested in various marketable investment tools. Once the individual reaches the retirement age (particularly 60 years), the invested corpus is paid back to him/her in the form of a pension amount. The contribution made to the scheme is voluntary during the employment tenure.

It can further be understood as-

  • NPS are of two types- Tier 1 and Tier 2. Both types of NPS offer different features
  • It is in the ratio of 60% and 40% where 60% of the amount is given to the individual as lump sum and 40% has to be spent on an annuity
  • The investment made into a Tier 1 account cannot be withdrawn till the time the individual reaches the age of 60 years. However, it is possible to withdraw some amount before maturity, that too, under specific situations
  • A Tier 2 account is a voluntary savings account. Such an account can only be opened if the investor has an active Tier 1 account
  • The investment made under Tier 2 can be withdrawn at any given point in time

Who can invest in NPS?

Investment in NPS can be done by the following people-

  • Any Indian citizen can invest in NPS
  • NRI can also invest in National Pension Scheme
  • It is mandatory that the age of the person should be between 18 years to 60 years of age


  • It is mandatory for an investor to comply with all the terms & conditions before investing in NPS
  • A duly filled application along with mandatory KYC documents are to be submitted by the investor

Documents required to open NPS

Proof of IdentityProof of Address
Ration card with photographPassport issued by the Government of India
Passport issued by the Government of IndiaRation card with photograph
Bank passbook with photographBank passbook with photograph
PAN cardVoter ID card
Driving licenseDriving license
Certificate of Identity issued with photograph signed by the Member of Parliament or Member of Legislative AssemblyCertificate of Identity issued with photograph signed by the Member of Parliament or Member of Legislative Assembly
Aadhaar cardAadhaar card
Job card issued by MNREGAJob card issued by MNREGA
Photo identity card issued by Government, Defence, Paramilitary and Police Departmentelectricity/water/telephone bill in the name of the individual (not less than 6 months old)
Ex-serviceman cardLatest house/property tax receipt (not less than 1-year-old)
Photo credit cardExisting valid registered lease agreement of the house on stamp paper (in case of rented/leased accommodation)
Voter ID card

What are the limitations of the NPS account?

Listed below are the limitations of an NPS account-

  • Tier 1 type of NPS account allows one to withdraw money only after reaching the age of 60 years
  • There are some withdrawal limits too
  • 60% of the amount is taxed by the government of India whereas only 40% is exempt from taxation
  • The individual cannot invest more than 50% of the total investment towards equities
  • Fluctuations in the market can impact the return of investment

What are the similarities between PPF and NPS?

PPF and NPS are similar in the following manner-

Similarities between PPF and NPS
NPS and PPF both are considered retirement benefit schemes
There is a requirement to open an account
Both the type of retirement corpus has a long term lock-in period
There is no tax on the final corpus
Premature amount withdrawal is allowed but under some circumstances

A detailed comparison between PPF and NPS?

The difference between PPF and NPS is explained as below-

ParticularsPublic Provident FundNational Pension Scheme
Who can investIndian citizens onlyParents/guardians can open a PPF account on behalf of their minorIndian citizens between the age of 18 to 60 years
NRIs can openNRIs are not allowed to open PPF accountYes, NRIs are allowed to invest in NPS
Maturity period15 yearsNo fixed tenure, however, the amount can only be redeemed once the individual attains the age of 60 years
Partial withdrawal allowed?Yes, partial withdrawal is allowed but only after 5 financial yearsYes, partial withdrawal is allowed after 3 years
Minimum and maximum deposit valueThe minimum deposit value is Rs. 500The maximum deposit value is Rs. 1.5 lakhThe minimum deposit value is Rs. 6,000The maximum deposit has no limit
Any tax benefitsDeposits made in the PPF are eligible for tax deduction under Section 80C Income Tax Act of up to Rs. 1.5 Lakhs,The account holder can avail of tax benefits only on Rs. 1.5 lakh under Section 80CCD while an additional tax benefit of Rs. 50,000 can be availed under Section 80CCD (2) of the income tax act
Purchase of AnnuityNot required40% of the amount has to be spent to buy an annuity
Extending the TenurePossible but in the block period of 5 yearsCan be extended till the age of 70 years


NPS and PPF, both are considered to be one of the best saving options to build a retirement corpus. Both the investment options have their own set of advantages, disadvantages and features and thus, should be chosen as per the requirement.

What is the lock-in period of the PPF account?
The lock-in period of the PPF account is 15 years.
How much is the minimum value to be deposited in an NPS account?
The minimum amount to be deposited in an NPS is Rs. 6000.
My age is 20 years, am I eligible to open an NPS account?
Citizens between the ages of 18 years to 60 years can invest in NPS.
Do PPF and NPS allow partial withdrawals?
Yes, both the types of account offer the flexibility to withdraw partial amounts under some circumstances.
What is the maturity time period of the NPS account?
The account holder can get the complete amount after attaining the age of 60 years with the opportunity to extend the tenure till the age of 70 years.
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