PPF, EPF and NPS explained
India's three main retirement vehicles work differently enough that comparing them on headline rate alone is misleading. Lock-in, tax treatment and whether you control the contribution all matter as much as the return.
PPF: Public Provident Fund
The PPF pays 7.1% per annum as of the July–September 2026 quarter — a rate that has been unchanged since April 2020, though it is reviewed quarterly by the government.
Contributions run from ₹500 to ₹1.5 lakh per financial year. The lock-in is 15 years, extendable in five-year blocks, with limited partial withdrawals permitted from year seven.
Its defining feature is EEE tax status: contributions, interest and maturity are all exempt. That is rare and valuable. A 7.1% fully tax-free return is equivalent to roughly 10.1% pre-tax for someone in the 30% bracket — which reframes it from a modest rate into a genuinely competitive one for the debt portion of a portfolio.
Note that the Section 80C deduction on contributions is available only under the old tax regime. The EEE treatment of interest and maturity holds regardless.
EPF: Employees' Provident Fund
The EPF pays 8.25% for FY 2025–26, set annually by the EPFO. It is the highest guaranteed rate available to most salaried Indians.
The standard structure is 12% of basic salary from the employee, matched by 12% from the employer — though part of the employer's share is diverted to the Employees' Pension Scheme rather than your EPF balance.
The employer contribution is the point people undervalue. It is not a return, it is additional compensation, and it makes EPF unbeatable on a risk-adjusted basis for the portion that is matched. Treat it as the first thing filled, before any other retirement saving.
The main drawback is inflexibility: it is tied to employment, and withdrawal rules are restrictive. Withdrawing when changing jobs — instead of transferring the balance — is a common and costly mistake, because it resets years of compounding.
NPS: National Pension System
Unlike the other two, NPS has no guaranteed rate. It is market-linked, with a choice of equity, corporate debt and government securities allocation, and equity capped below 75% depending on the option chosen.
Its costs are extremely low — among the cheapest managed products available anywhere — which compounds meaningfully over decades.
The significant constraints are at exit: the lock-in runs to age 60, and at maturity a minimum portion must be used to buy an annuity, with only the remainder available as a lump sum. Annuity rates in India have generally been unattractive, and this mandatory annuitisation is the most common objection to the product.
How to think about the three
They are not competitors so much as layers.
EPF is automatic and carries an employer contribution, so it fills first by default. PPF is the natural home for the safe, tax-free portion of long-term savings, especially valuable for those in higher brackets. NPS adds low-cost equity exposure with a retirement-specific lock-in that some find useful as a commitment device and others find restrictive.
All three are debt-heavy apart from the NPS equity allocation. If these are your entire retirement plan, the overall portfolio is conservative — which limits the downside and also limits long-run growth. A separate equity allocation is usually needed alongside them.
Do the arithmetic yourself
Put ₹1.5 lakh a year at 7.1% over 15 years into the compound interest calculator — about ₹40.7 lakh, entirely tax-free, from ₹22.5 lakh contributed. Then compare against an equity assumption over the same period and note both the higher expected figure and the fact that it carries no guarantee.
Rates and rules are as of August 2026 and change. Verify current figures before acting, and confirm your tax position with a qualified professional.
Frequently asked questions
What is the current PPF interest rate?
7.1% per annum for the July-September 2026 quarter, unchanged since April 2020. The rate is reviewed quarterly by the government. Contributions are capped at Rs 1.5 lakh per financial year with a 15-year lock-in.
What is the current EPF interest rate?
8.25% for FY 2025-26, set annually by the EPFO. The standard structure is 12% of basic salary from the employee matched by 12% from the employer, though part of the employer share goes to the pension scheme rather than your EPF balance.
Is PPF better than FD?
For long-term money, generally yes for higher-bracket taxpayers. PPF's 7.1% is fully tax-free under EEE status, equivalent to roughly 10.1% pre-tax in the 30% bracket, while FD interest is taxed at slab rate every year. The trade-off is PPF's 15-year lock-in.
What is the main drawback of NPS?
The mandatory annuitisation at maturity. A minimum portion of the corpus must be used to buy an annuity rather than taken as a lump sum, and annuity rates in India have generally been unattractive. The lock-in to age 60 is also restrictive.