NPS vs PPF investments: Returns, tax benefits, liquidity and more

One of the critical differences between NPS and PPF lies in their returns.

According to Navin Kumar, CEO at Stock Market Trading Lab, NPS returns are influenced by the allocation chosen by the investor, offering a dynamic range of choices to cater to various risk appetites.

"PPF, on the other hand, provides fixed interest rates set by the government and compounded annually. Historically, PPF has delivered steady returns, while NPS returns are more prone to market fluctuations," he said.

Tax benefits are crucial aspects when comparing investment avenues. NPS provides deductions under Sections 80C and 80CCD(1B), but taxation applies to a portion of the corpus at maturity. PPF, however, offers tax benefits on both the investment and earned interest, and the maturity amount remains tax-free, as per Kumar.

These are additional factors to consider. NPS has controlled withdrawal options, primarily accessible post-retirement.

"In contrast, PPF allows partial withdrawals from the seventh year onward. NPS also offers asset allocation choices based on individual risk tolerance, whereas PPF follows a fixed investment structure," Kumar said.

The choice between NPS and PPF hinges on aligning the investment with one's financial aspirations, risk profile, and time horizon.

As per Kumar, NPS is more suitable for those comfortable with market-linked returns and focused on retirement planning. Alternatively, PPF is an excellent option for risk-averse investors seeking secure, fixed-return investments with tax advantages and flexibility for diverse financial objectives.

"Ultimately, making an informed decision requires comprehensive research and thoughtful evaluation. It's advisable to consult a financial advisor who can tailor your investment choices to your unique circumstances and goals. Factors like risk appetite, age, and available capital play a significant role in the selection process. For younger contributors with a high-risk appetite, NPS may be more appealing due to its market-dependent returns. In contrast, those nearing retirement might prefer the PPF for its fixed returns and yearly compounding, coupled with tax benefits," he said.

To understand, the choice between NPS and PPF is a matter of individual preference and strategic planning, taking into account the associated risks and rewards.