Ritesh Sabharwal CFP®

W.M.W #24: NPS vs PPF vs MF: The ₹70 Lakh question?

Reading time: 5 minutes - November 29, 2025

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Hey Reader

Last week, my 35-year-old friend Meera asked me something I hear all the time:

Meera: "I want to start investing ₹10,000/month for retirement. Should I go with NPS, PPF, or just mutual funds?"
​Me: "That's the ₹70+ lakhs question."
​Meera: "What do you mean ₹70+ lakhs question?"
​Me: "Let me show you."

I ran the same ₹10,000/month through all three options for 25 years. 5 minutes later, Meera was stunned.

NPS: ₹74.4 lakhs (excl. Annuity)
​PPF: ₹79.92 lakhs (tax-free)
​Equity Mutual Funds: ₹1.5 crore (post-LTCG tax)

The difference between the best and worst? ₹70+ lakhs.

That's the price of choosing the wrong retirement vehicle. Let me show you exactly how these three compare—and more importantly, which one (or combination) is right for you.

The ₹10K/Month Test: Same Investment, Three Different Outcomes

Here's the setup:

Investment: ₹10,000/month
​Duration: 25 years (age 35 to 60)
​Total invested: ₹30 lakhs

Now let's see what happens with each option.
​
​Option 1: National Pension System (NPS)

Expected returns: 10-12% CAGR (let's use 10% to be conservative)
​Tax benefit: Extra ₹50,000 deduction under Section 80CCD(1B)
​Lock-in: Till age 60
​Calculation: ₹10,000/month for 25 years @ 10% = ₹1.24 crore

Here's what NPS forces you to do at maturity:

At age 60:

• You MUST buy an annuity with 40% of corpus
• You can withdraw 60% lump sum (tax-free)

The math:

• Total corpus: ₹1.24 crore
• Annuity purchase (mandatory 40%): ₹49.6 lakhs
• Lump sum withdrawal (60%): ₹74.4 lakhs (tax-free)

But wait - what about that ₹49.6 lakh annuity?

Annuity rate in India: ~6-7% per year
At 6%, ₹53.2 lakhs generates: ₹24,800/month pension

This monthly pension is taxable at your slab rate.

If you're in the 30% tax bracket, your real pension = ₹17,360/month

Total value at retirement:

• Lump sum: ₹74.4 lakhs
• Annuity value: ₹49.6 lakhs (but locked, generating taxable income)

*Note - There are new changes proposed to the NPS which might alter the above if they go through

Option 2: Public Provident Fund (PPF)

Current returns: 7.1% per annum
​Tax benefit: Up to ₹1.5L under Section 80C
​Lock-in: 15 years (extendable in 5-year blocks)
​Problem: PPF has a ₹1.5 lakh annual limit.
​Investment: 25 years (15 years lock in with 5-year extension + another 5 years extension

₹10K/month = ₹1.2 lakhs/year → Within limit ✓

Calculation: ₹10,000/month (₹1.2L/year) for 25 years @ 7.1% = ₹79.92 lakhs
Tax status: Completely tax-free under EEE (Exempt-Exempt-Exempt) status
​Effective retirement corpus: ₹79.92 lakhs (100% yours, zero tax)

*Note - PPF interest rate also changes so that may affect the above

Option 3: Equity Mutual Funds

Expected returns: 12% CAGR (Nifty 50 historical average)
​Tax: 12.5% LTCG tax on gains above ₹1.25 lakh/year
​Lock-in: None (fully liquid)
​Calculation: ₹10,000/month for 25 years @ 12% = ₹1.70 crore

Tax calculation:

• Total corpus: ₹1.70 crore
• Total invested: ₹30 lakhs
• Capital gains: ₹1.40 crore

If you withdraw everything at once:

• Taxable gains: ₹1.40Cr - ₹1.25L = ₹1.38Cr
• Tax: ₹1.38Cr × 12.5% = ₹17.34 lakhs

Post-tax corpus: ₹1.70Cr - ₹17.34L = ₹1.5 crore (after tax withdrawal)
​
​The difference:

Equity MF (₹1.5Cr) - NPS (₹74.4L excl. Annuity) = ₹78.3 lakhs higher​
Equity MF (₹1.5Cr) - PPF (₹79.92L) = ₹72.8 lakhs higher​
PPF (₹79.9L) - NPS effective (₹74.4L) = PPF slightly ahead (but NPS annuity is also there)

So it seems Equity MF is real winner - WRONG

The Tax Benefit During Accumulation (25 years) Changes Everything

With NPS (excluding Corporate NPS deductions):

• Extra ₹50,000 deduction under Section 80CCD(1B)
• At 30% tax slab: Saves ₹15,000/year in taxes
• Over 25 years: ₹3.75 lakhs tax saved

If you invest that ₹15,000/year tax saving back into equity MF:

• ₹15,000/year for 25 years @ 12% = ₹22.4 lakhs

Total NPS + reinvested tax savings: ₹74.4L (NPS lump sum) + ₹22.4L (tax savings invested) = ₹96.8L

With PPF:

• ₹1.5 lakh deduction under Section 80C
• But you were already using 80C for other things (ELSS, life insurance, etc.)
• Marginal benefit: Assume ₹50K incremental deduction = ₹15K saved
• Tax saved: ₹15,000/year × 25 years = ₹3.75 lakhs
• Invested @ 12%: ₹22.4 lakhs

Total PPF + reinvested tax savings: ₹79.92L + ₹22.4L = ₹1.02 crore

With Equity MF:

• No upfront tax benefit
• But LTCG tax is only 12.5% (vs 30% income tax on annuity)

The Real Winner? It Depends on Your Situation

After running all these numbers, here's my honest take:

Choose NPS if:

✅ You want forced discipline (can't touch till 60)
✅ You're in a high tax bracket (30%) and want extra ₹50K deduction
✅ You're okay with 40% locked in annuity​
✅ You want low maintenance (auto-managed by pension funds)
✅ You're risk-averse but okay with market-linked returns

Best for: Salaried employees in 30% tax bracket who lack investment discipline

Choose PPF if:

✅ You want guaranteed returns (no market risk)
✅ You want 100% tax-free maturity (EEE status)
✅ You can wait 15 years for liquidity
✅ You want safety over returns​
✅ You're already maxing out 80C but want more safe debt

Best for: Conservative investors, near-retirement folks (age 45+), people building emergency/stability corpus

Choose Equity Mutual Funds if:

✅ You want maximum growth potential​
✅ You can handle volatility (10-15% annual swings)
✅ You want full flexibility (withdraw anytime)
✅ You're young (25-40) with 20+ years to retire
✅ You don't need tax deductions (already saving taxes elsewhere)

Best for: Young investors (25-45), those with stable income, people who understand equity markets

👉 Action Step for This Week

Step 1: Calculate how much you're currently investing in NPS, PPF, and equity MF
​Step 2: Check your age and tax bracket
​Step 3: Adjust your allocation:

• If you're 100% in one option → Diversify
• If you're not using NPS and you're in 30% bracket → Add 20-30% in NPS
• If you have no equity → Start with 50-70%

Step 4: Automate your SIPs in all three (don't rely on manual investment)

Got questions about your NPS/PPF/MF allocation? Hit reply with your questions and I'll respond to your queries.

Connect with me on LinkedIn, I write every day to help you make smarter money decisions👇

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