National Pension System(NPS) or PPF
National Pension System(NPS) is a market-linked pension savings vehicle set up by the Government of India. Like mutual funds, the returns of the NPS depend on the performance of pension fund managers and the market. PPF or Public Provident Fund is a government-backed savings vehicle with fixed returns, set by the Government every quarter. The PPF is not a pension or retirement-specific vehicle, it can also be used for other purposes. The NPS scheme, on the other hand, is a retirement-specific savings vehicle. In this article, we will compare the two as investment vehicles.
Comparison of Returns and NPS vs PPF
| Criterion | PPF | NPS |
| Safety | High | Low |
| Returns | Moderate | High* |
| Liquidity | Low | Low |
| Taxation | Fully exempt | Low** |
1.Safety
The NPS is not “safe” in the sense that it is not a fixed return instrument. On the whole, though, it is subject to strict regulation by the Pension Fund Regulatory and Development Authority, or PFRDA, and fraud or other malpractice is unlikely to pose a significant threat.
The performance of pension fund managers determines the NPS returns, and if you are unhappy with your manager’s work, you have the option to switch managers. The government determines the fixed returns for the PPF. The government also makes use of the PPF funds. It therefore has a very low default risk.
2) Returns
The PPF has a fixed return rate. The exact rate is set every quarter. Historically rates have fluctuated around 8% per annum. Here is a brief history of PPF interest rates:
| Period | Rate |
| April – June 2024 | 7.1% |
| January -March 2024 | 7.1% |
| October – December 2023 | 7.1% |
| July – September 2023 | 7.1% |
| April – June 2023 | 7.1% |
| January – March 2023 | 7.1% |
| October – December 2022 | 7.1% |
| July – September 2022 | 7.1% |
| April – June 2022 | 7.1% |
| January – March 2022 | 7.1% |
| October – December 2021 | 7.1% |
| July – September 2021 | 7.1% |
| April-June 2021 | 7.1% |
| January-March 2020 | 7.1% |
| October – December 2020 | 7.1% |
| July – September 2020 | 7.1% |
| April – June 2020 | 7.1% |
| January – March 2020 | 7.9% |
| October – December 2019 | 7.9% |
| July – September, 2019 | 7.9% |
| April-June, 2019 | 8.0% |
| January-March, 2019 | 8.0% |
| October-December, 2018 | 8.0% |
| July – September, 2018 | 7.6% |
| April – June, 2018 | 7.6% |
| January – March, 2018 | 7.6% |
| October – December, 2017 | 7.8% |
| July – September, 2017 | 7.8% |
| April – June, 2017 | 7.9% |
| January – March , 2017 | 8.0% |
| October – December, 2016 | 8.1% |
| July – September, 2016 | 8.1% |
| April – June, 2016 | 8.1% |
| April 2015 – March 2016 | 8.7% |
| April 2014 – March 2015 | 8.7% |
| April 2013 – March 2014 | 8.7% |
| April 2012 – March 2013 | 8.8% |
| December 2011 – March 2012* | 8.6% |
| April 2011 – December 2011 | 8.0% |
| April 2010 – March 2011 | 8.0% |
| April 2009 – March 2010 | 8.0% |
| April 2008 – March 2009 | 8.0% |
Source: National Savings Institute
The NPS or National Pension System returns depend on the performance of NPS funds. The table below will give you the performance of NPS Equity Funds. Note that an NPS allows a maximum of 75% allocation to equity. The balance amount can be placed in NPS Corporate Bond Funds or NPS Government Bond Funds.
| Pension Fund | Returns (1 year) | Returns (3 years) | Returns (5 years)) |
| SBI Pension Funds Pvt. Ltd | 6.30% | 14.80% | 51.80% |
| UTI Retirement Benefit Fund | 5.70% | 2.40% | 6.63% |
| Kotak Mahindra Pension Fund Ltd. | 10.40% | 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% |
3) Liquidity
PPF has a fifteen-year term. Partial withdrawals are permitted following the conclusion of the sixth fiscal year, or at the start of the seventh fiscal year from the year of account opening. Nonetheless, it is advised that to find out when a partial withdrawal is permitted, one should visit the relevant bank website. Withdrawals are permitted after five years in the case of ICICI and Axis and seven years in the case of SBI and HDFC. The lowest of the following is the maximum amount that can be withdrawn in a given fiscal year:
50% of the balance in the account at the end of the fiscal year that came before the current year, or 50% of the balance at the end of the fiscal year that came before the current year.
4) Taxation
Investment in the PPF account up to Rs 1.5 lakh per annum gets you a tax deduction under Section 80 C of the Income Tax Act, 1961. The interest on the PPF is also exempt from tax but must be declared in the annual income tax return. The PPF maturity amount is also exempt from tax. In other words, PPF enjoys ‘exempt, exempt, exempt’ tax treatment.
Investment in the NPS is tax-deductible up to Rs 1.5 lakh under Section 80 C. However such NPS contributions cannot be more than 10% of your salary. You can also get an additional tax deduction under Section 80 CCD (1B) for NPS. The returns on the NPS are also tax-free so long as the money is held in the HDFC account. On maturity, 40% of the NPS balance can be withdrawn tax-free. Another 40% must be compulsorily used to buy an annuity (a monthly income). This annuity will be taxable. The balance 20% can be withdrawn after paying tax or also be used to buy an annuity.
5) Retirement Focus
The PPF can be used to save for retirement but it is not geared specifically to retirement. For example, you can open a PPF account for your minor child and this will mature when he/she becomes an adult or starts his career. An NPS account can only be opened by someone above the age of 18 and it only matures at the age of 60. In other words, the NPS lock-in can be much longer.
