scorecardresearchPPF or NPS: What should you choose?

PPF or NPS: What should you choose?

Updated: 25 Mar 2022, 11:37 AM IST

While the PPF offers one of the highest fixed-income yields, equities are believed to offer a relatively higher return, especially in the long term. Let us compare the two savings instruments based on a number of criteria

PPF offers one of the highest fixed-income yields whereas equities are believed to offer a relatively higher return, especially in the long term.

PPF offers one of the highest fixed-income yields whereas equities are believed to offer a relatively higher return, especially in the long term.

The National Pension System (NPS) is an Indian government-run market-linked pension savings vehicle. The NPS, like mutual funds, is reliant on the success of pension fund management and the market. The Public Provident Fund, or PPF, is a government-backed savings vehicle with quarterly fixed returns determined by the government. 

The PPF isn’t just for pensions or retirement; it can also be utilised for other things. The NPS, on the other hand, is a savings vehicle designed specifically for retirement.

We can compare the two financial instruments along with various criteria


The NPS is not a fixed-return instrument and so is not safe. However, in a broader sense, it is closely regulated by the PFRDA (Pension Fund Regulatory and Development Authority) and is unlikely to suffer significant fraud/malpractice difficulties.

The NPS returns are determined by the performance of Pension Fund Managers, and you have the option to change managers if you are unhappy with their performance. The government announces the returns on the PPF. The money from the PPF is also used by the government. As a result, there is virtually little chance of default.


The PPF has a set rate of return. Every quarter, the exact rate is determined. In the past, rates have fluctuated around eight per cent per year. Here’s a quick rundown of PPF rates over the years:

PPF return rate over the years

QuarterReturn Rate
April-June 20217.1%
January-March 20207.1%
October – December 20207.1%
July – September 20207.1%
April – June 20207.1%
January – March 20207.9%
October – December 20197.9%
July – September 20197.9%
April-June, 20198.0%
January-March, 20198.0%
October-December, 20188.0%
July – September 20187.6%
April – June 20187.6%
January – March 20187.6%
October – December 20177.8%
July – September 20177.8%
April – June 20177.9%
January – March 20178.0%
October – December 20168.1%
July – September 20168.1%
April – June 20168.1%
April 2015 – March 20168.7%
April 2014 – March 20158.7%
April 2013 – March 20148.7%
April 2012 – March 20138.8%
December 2011 – March 20128.6%
April 2011 – December 20118.0%
April 2010 – March 20118.0%
April 2009 – March 20108.0%
April 2008 – March 20098.0%

The returns of the NPS, or National Pension System, are determined by the performance of NPS funds. The performance of NPS Equity Funds is shown in the table below. It’s worth noting that an NPS allows for a maximum equity investment of 75 per cent. The remaining funds can be invested in NPS Government Bond Funds or NPS Corporate Bond Funds. You may get the most recent returns for these here.

Fund ManagersReturns 1 yearReturns 3 yearsReturns 5 years
SBI Pension Funds Pvt. Ltd6.30%14.80%51.80%
UTI Retirement Benefit Fund5.70%2.40%6.63%
Kotak Mahindra Pension Fund Ltd10.40%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%

The PPF has a 15-year tenure. After the end of the sixth financial year, i.e. the beginning of the seventh year, investors are allowed to make partial withdrawals. However, it is recommended to check the bank’s website to see whether partial withdrawals are allowed. Withdrawals are permitted after five years in some banks, such as ICICI and Axis, and after seven years in others (SBI and HDFC). The lesser of the following amounts is the maximum amount that can be withdrawn every financial year:

  • 50 percent of the account balance at the end of the previous financial year, or 50 per cent of the current year’s account balance
  • 50 percent of the account balance at the conclusion of the previous financial year, which preceded the current year.

NPS matures when the investor turns 60-year-old, although it can be extended upto the age of 70 years. Under the ‘partial withdrawal’ provision, you can withdraw up to 25 percent of your contributions three years after starting the account. 

There are only three such withdrawals from the NPS that you can make. Withdrawals are permitted for a variety of reasons, including marriage or the further education of children, the construction or purchase of a home, or the treatment of ailments such as cancer and kidney failure.


Under Section 80C of the Income Tax Act, 1961, you can deduct up to 1.5 lakh per year in PPF contributions. PPF interest is also tax-free, although it must be reported on the annual income tax return. The amount invested in a PPF at maturity is likewise tax-free. To put it another way, PPF is taxed ‘exempt, exempt, exempt.’

Section 80C allows you to deduct up to 1.5 lakh in NPS contributions. However, such contributions cannot exceed 10 percent of your annual pay. NPS also qualifies for an additional tax deduction under Section 80 CCD (1B).

At maturity, you can withdraw up to 40 per cent of your NPS amount tax-free. The remaining 40 per cent must be utilised to purchase an annuity (a monthly income). This annuity will be subject to taxation. The remaining 20 per cent can be taken after paying taxes or used to purchase an annuity.


Investment in the PPF is, at times, done to save for retirement, but it is not designed for that purpose. You can, for example, open a PPF account for your minor child, which will mature when he or she becomes an adult or starts earning. Anyone above the age of 18 can open an NPS account, but it matures only at the age of 60. In other words, the NPS has a long lock-in period.

While the PPF offers one of the highest fixed-income yields, equities are recognised to provide a substantially higher long-term return. When looking at historical returns, it is clear that PPF cannot compete with NPS in terms of absolute returns, which have been mainly in the double digits.

First Published: 25 Mar 2022, 11:37 AM IST