Comparison between PPF and NPS which is better?

In terms of how they come to the investor’s aid post retirement, both Public Provident Fund (PPF) and National Pension Scheme (NPS) have their own advantages. We can say both of these are long term investment vehicles. With much in similar between them, they also differ significantly from each other. Understanding their features in detail can help make the right decision and decide which one of these two will suit your specific needs and expectations.

Who is eligible for PPF and NPS

All Indian residents (not NRIs) are eligible for PPF, which can be understood as a long-term retirement plan. Such demarcations are not applicable in case of NPS. All Indians including NRIs can open an NPS plan provided they are aged between 18 and 60.

Minimum and maximum investment possible

The lower brackets of investment is similar in both PPF and NPS. The minimum investment to be made in these schemes is Rs 6,000 per financial year with the deposits made 4 to 12 times. The minimum contribution during any given deposit is Rs 500. The upper bracket for these investments differ. The maximum limit of deposit allowed per year in case of PPF is Rs 1,00,000. Though there is no such upper limit for depositing in NPS, it is possible to get tax benefits for up to Rs 1,00,000 in NPS. The condition is that the contribution amount must be within 10% bracket of the total salary of the investor.

Return on investment

The high returns the pension schemes assure the investors is one of the alluring reasons why a lot of people prefer PPF or the NPS. However, when compared to the PPF, NPS can present a better scope for returns as a portion of the investment is put on equity trading which can mean higher returns. On the other hand, the PPF is all about fixed returns and there is never a scope for any added frills.

Rate of return

Over a specified period, PPF gives fixed returns in every way. Any changes in this are notified to the investors in advance. However, the returns you can expect on an NPS purely depends on the performance of the fund manager and the combination of the asset class. Talking of the short term benefits, NPS returns are volatile in nature. Through the NPS investment, you have the option of investing about 50% of your invested amount in equity trading and hence the emphasis in this case must be on the long-term. Compared to the PPF, only 50% of the invested amount is on a safer bet. When we talk of the returns, NPS seems to be a better option than PPF.

Weighing PPF and NPS against each other

Both PPF and NPS have their own unique advantages over the other. If you are looking for a risk free and safe investment option with solid returns, you must think of PPF. On the other hand, NPS comes with two significant benefits namely the safety of the principal as well as the appreciation of the invested amount. Hence the choice is clear once you specify what you expect from your investment.