PPF vs. NPF: Which One is Better for Employee Retirement Plan?

December 10, 20195:25 pm2955 views
PPF vs. NPF: Which One is Better for Employee Retirement Plan?
PPF vs. NPF: Which One is Better for Employee Retirement Plan?

A retirement plan has always been an added benefit for employees offered by companies. Each employer allows different retirement plan depending on the country their business is operating. For Indian employers, employees are given two popular choices of retirement plan, namely Public Provident Fund (PPF) and National Provident Fund (NPF). Both bring their own advantage to employees. Yet, which one should you advise your employees to take? Here is what you need to know.

See also: Singapore to Raise Retirement Age Amidst Greying Society

Public Provident Fund 

PPF has become an employer’s choice when it comes to an employer-employee retirement plan. As explained by Paisa Bazaar, Public Provident Fund scheme is one of the most popular long-term saving investment products, mainly due to its combination of safety, returns, and tax savings. Its popularity is gained because it becomes one of the safest investment products. 

For instance, the government will guarantee an employer-employee investment in the fund. At the time of writing, PPF offers at least 7.9 percent interest, compounded annually. The interest rate is set by the government every quarter, thus, it will be guaranteed and safe. 

Paisa Bazaar added that Public Provident fund will provide more benefits such as the interest earned on the savings are both tax-free, the interest rate for PPF account is declared quarterly every year by the government which results in higher returns compared to Fixed Deposits rate. In addition, PPF accounts are immune from attachment from any order or decree. 

National Provident Fund  

Commonly known as National Pension System (NPS), National Provident Fund (NPF) is a financial security and stability plan that is easily accessible and low cost. According to National Portal of India, NPF is designed on Defined contribution basis wherein there is no defined benefit that would be available at the time of exit from the system and the accumulated wealth depends on the contributions made and the income generated from the investment. 

Under the NPF, employees contribute to his retirement account while the employer can co-contribute for the social of his/her employees. The greater value of contributions made by both employee and employer, the greater investments achieved. In addition, the longer the term over which the fund accumulates and the lower charges deducted, the larger the eventual benefit of the accumulated pension wealth would likely be. 

The biggest benefit of opening an NPS account is its transparency and cost-effective system. There are two types of personal accounts offered. First is Tier I Account which is a non-withdrawable account meant for savings for retirement. Second is Tier II Account which is simply a voluntary savings facility. Tier II is free to withdraw by subscribers from their account whenever they wish but there is no tax benefit available on this account.  

Other considerations 

PPF and NPF have their own characteristics in terms of safety, returns, liquidity, and taxation. Here is a brief table of those characteristics. 

different between ppf and npf

In conclusion, PPF is the best match for employees who are not geared specifically to self-mattered retirement, but rather for other matters such as children care. If employees have PPF during his work life, the PPF fund will mature when his children become an adult or start their career. Meanwhile, NPF can only be opened by someone above 18 and matures at the age of 60, meaning NPF will stay longer in the account if it is meant for your minor children. 

Read also: A to Z Retirement Plan across Asia You Should Know

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