Public Provident Fund (PPF) is one of the most popular schemes among people. PPF is a long-term investment of around 15 years. PPF is known to generate a steady flow of income. Minimum amount considered for opening a PPF account is Rs. 500 and maximum amount considered for opening a PPF account is Rs 1.5 Lakhs. Account can also be opened on behalf of a minor. On the other hand, National Pension Scheme (NPS) is offered by Government of India and is regulated by Pension Fund Regulatory and Development Authority (PFRDA). It is specifically designed to facilitate financial concerns of people after retirement. There is also availability of Income Tax benefits under certain sections under Income Tax Act 1961. Both schemes have been quite successful in the country. However, both come with their own pros and cons.
1. Risks Involved
National Pension System (NPS) is regulated by Pension Fund Regulatory and Development Authority (PFRDA) and is considered quite safe as long as performance of fund managers is good. On the other hand, PPF is backed by Government so carries almost no risk involved.
Public Provident Fund has certain rate of interest set quarterly by Ministry of Finance. NPS also works quite the same way but NPS provides a maximum of 75% provision to equity. The amount can be put into NPS corporate or government bond funds. Hence, returns of NPS are considered to be higher than those of PPF.
Investing in PPF account for maximum Rs 1.5 Lakh per annum provides tax deduction under Section 80C of the Income Tax Act, 1961. PPF also enjoys benefits of tax exemption. Investment of NPS for maximum Rs 1.5 Lakh per annum provides tax deduction under Sector 80C of the Income Tax Act, 1961. The returns of the scheme are tax free through HDFC account. NPS also enjoys additional tax deduction under Section 80 CCD (1B). Post maturity, 40% of corpus withdrawn is also tax free. Yet, another 40% is to be used to buy annuity which is taxable.
While Public Provident Fund (PPF) is aimed to help citizens gain more financial discipline, still could be used for plan of retirement whereas National Pension System (NPS) scheme is specifically designed to produce pension for people after retirement and help them lead a relaxed life without worrying about regular income source and finances.
Public Provident Fund (PPF) allows to avail partial withdrawal facility after starting of 7th year. One can also avail loan against balance in the PPF account. National Pension System (NPS) scheme allows to make three partial withdrawals for emergencies under particular policies.
Hence, when both schemes are compared to each other keeping in sight different categories of features that are offered, it is certain the NPS is a better scheme.