1. Safety
While the NPS doesn't offer guaranteed returns like PPF, it is still a secure option. NPS is regulated by PFRDA (Pension Fund Regulatory and Development Authority), minimising the risk of fraud or mismanagement. However, as it invests in market-linked assets, its returns fluctuate based on how those assets perform.
PPF, on the other hand, provides fixed returns set by the government. Since the government backs this scheme, the risk of default is practically non-existent. However, the returns can be lower compared to NPS.
2. Liquidity
NPS and PPF both have lock-in period, yet they provide investors with the option of partial withdrawals.
NPS allows partial withdrawals from the account after 3 years. You can request withdrawals of up to 25% of the total contributions, but these are only allowed for specific reasons. These reasons include financing the higher education or marriage of children, acquiring or constructing a residential house or medical expense.
On the other hand, PPF also allows partial withdrawals, but the option becomes available from the 7th year onward. Full withdrawal is not permitted from a PPF account. You can withdraw up to 50% of the balance at the end of the 4th preceding year or the end of the preceding year, whichever is less.
Additionally, PPF offers a loan facility between the 3rd and 6th financial year after opening the account.
3. Taxation
Contributions of up to Rs 1.5 lakh per annum in the PPF account qualify for a tax deduction under Section 80C of the Income Tax Act, 1961. The interest accrued in the PPF is exempt from tax, though it needs to be declared in the annual income tax return. Furthermore, the maturity amount from the PPF is also tax free, embodying the 'exempt, exempt, exempt' tax treatment.
In contrast, investments in the NPS are tax-deductible up to Rs 1.5 lakh under Section 80C, with the condition that NPS contributions cannot exceed 10% of one's salary. Additionally, an extra tax deduction can be claimed under Section 80CCD (1B) for NPS. Upon maturity, 40% of the NPS balance can be withdrawn tax-free, while another 40% must be used to purchase an annuity, subject to taxation.
NPS vs PPF vs Bajaj Finance FD
Parameter
|
NPS
|
PPF
|
Bajaj Finance FD
|
Maturity
|
After attaining 60 years of age.
|
Has a fixed maturity period of 15 years, extendable in blocks of 5 years.
|
12 months to 60 months
|
Interest
|
Generally, ranges between 9% to 12%
|
7.1% p.a. (as of 1, January 2024)
|
Up to 8.85% p.a.
|
Minimum investment
|
Rs. 1,000
|
Rs. 500
|
Rs. 15,000
|
Maximum investment
|
No upper limit
|
Rs. 1.5 lakh in a financial year
|
Rs. 3 crore
|
