Both get recommended at every family gathering, and both lock your money away for a long time. They work very differently, though. One gives you a government-set rate and full access at maturity. The other puts part of your money in the market and asks you to buy a pension with a share of it.
By Vision Wealth team. Published October 2026. Rules as of 2026, check current rules before you invest.
PPF in one paragraph
The Public Provident Fund is a 15-year account backed by the government. You can put in anywhere from ₹500 to ₹1,50,000 in a financial year. The interest rate is set every quarter by the government; it has been 7.1% a year for some time. Under the old regime your deposit counts towards Section 80C, the interest is tax-free and so is the maturity amount. After 15 years you can close it or extend it in blocks of 5 years. Partial withdrawals open up from the 7th financial year.
NPS in one paragraph
The National Pension System is a retirement account where your money goes into a mix of equity, corporate bonds and government securities. You choose the mix, or let it shift automatically towards safer assets as you age. There is no fixed rate: what you get depends on the market. The account runs till 60. At exit, up to 60% of the corpus can be taken as a lump sum, tax-free, and at least 40% must buy an annuity, which pays you a monthly pension that is taxed as income.
Side by side
| Point | PPF | NPS (Tier I) |
|---|---|---|
| Return | Government-set rate, reviewed quarterly | Market-linked, can go up or down |
| Equity exposure | None | Up to 75% if you choose, lower as you age |
| Lock-in | 15 years, extendable by 5 | Till age 60 |
| Early access | Partial withdrawal from year 7 | Partial withdrawal for set reasons, after 3 years |
| At maturity | Full amount, tax-free | Up to 60% tax-free lump sum, at least 40% into an annuity |
| Tax deduction | 80C, within the ₹1,50,000 cap | 80C, plus an extra ₹50,000 under 80CCD(1B) |
| Yearly limit | ₹1,50,000 | No upper limit on contribution |
Tax treatment above applies to the old regime. Under the new regime, neither 80C nor 80CCD(1B) is available; only an employer's NPS contribution under 80CCD(2) still counts. Rules as of 2026, check current rules.
A worked example: ₹1,50,000 a year for 15 years
Meera is 45 and plans to stop working at 60. She can set aside ₹1,50,000 every April. Here is what each route could look like after 15 years. The PPF figure uses the current 7.1% rate held flat, which will not happen exactly. The NPS figure uses 9% a year as an assumed rate for illustration only.
| 15 years, ₹22,50,000 put in | PPF at 7.1% | NPS at 9% (assumed rate for illustration) |
|---|---|---|
| Value at 60 | about ₹40.7 lakh | about ₹48.0 lakh |
| Cash in hand at 60 | ₹40.7 lakh, all of it | up to ₹28.8 lakh (60%) |
| Goes into a pension | Nothing compulsory | at least ₹19.2 lakh (40%) |
| Monthly pension from that 40% | Not applicable | about ₹9,600, before tax, if the annuity pays 6% a year |
NPS ends up with a bigger number in this example, but Meera only controls about ₹28.8 lakh of it. The PPF route gives her a smaller figure with full control and no market risk. If the market has a poor patch in her late fifties, the NPS figure can come in well under ₹48 lakh. That is the trade-off in plain numbers.
Assumed rates for illustration, not a promise of any return. NPS returns are market-linked and can be negative over short periods. Annuity rates vary by provider and the year you buy.
When PPF makes more sense
- You want certainty, and a market fall in the last five years would keep you awake.
- You want the full amount in your hands at maturity, not a pension you cannot undo.
- You are already using equity through mutual fund SIPs and want a steady base under it.
- You may need some of the money in year 7 to 15 for a child's education.
When NPS makes more sense
- You are under 40, so the equity part has 20 or more years to work.
- You file under the old regime and already fill 80C, so the extra ₹50,000 deduction is real money. At the 30% slab that saves about ₹15,600 a year with cess.
- Your employer contributes to NPS, which is deductible even in the new regime.
- You know you would dip into savings if you could, and want the discipline of a lock till 60.
Why many people end up using both
This is not a one-or-the-other choice for most salaried families. A common pattern looks like this: PPF fills part of the 80C room as the steady, tax-free base. NPS takes the separate ₹50,000 under 80CCD(1B). Equity mutual funds through SIP do the heavy lifting for growth, with no lock-in beyond what you choose. Each piece has a job, and none of them carries the whole retirement alone.
A 32-year-old putting ₹1,50,000 a year into PPF for 25 years, extending twice after the first 15, could reach about ₹1.03 crore at 7.1%. The same amount in NPS at an assumed 9% could reach about ₹1.38 crore, with 40% of it going into a pension. Neither number on its own tells you which is right. Your other savings, your job, and how you react to a falling market decide that.
Three mistakes we see
- Choosing NPS only for the tax saving and then picking the most cautious mix at 28. That gives up most of the growth that justified the lock.
- Letting PPF lapse by missing the ₹500 minimum in a year. Reviving it means a small penalty and paperwork.
- Ignoring the annuity tax. The NPS pension is taxed at your slab. Plan your other income around it.
For the numbers on your own age and salary, try the PPF calculator and the NPS calculator, or read our retirement planning page for how we build a full plan.
General information, not tax advice or a recommendation. Rules as of 2026, check current rules or consult a tax professional. Mutual fund investments are subject to market risks, read all scheme related documents carefully. Past performance may or may not be sustained in future.
