NPS Vs EPF: Which is more beneficial for your retirement?

Choosing a single investment tool for such an important part of life can be overwhelming. Not investing in the right instrument could mean that you are losing the potential return on your investment. Therefore, it is better to understand these investment tools correctly to make an informed decision.

To have a financially secure and trouble-free retirement, people invest in various instruments, such as mutual funds, stocks, and real estate, along with EPF and NPS, which are the two most popular retirement tools.

Choosing a single investment tool for such an important part of life can be overwhelming. Not investing in the right instrument could mean that you are losing the potential return on your investment. Therefore, it is better to understand these investment tools correctly to make an informed decision.

To have a financially secure and trouble-free retirement, people invest in various instruments, such as mutual funds, stocks, and real estate, along with EPF and NPS, which are the two most popular retirement tools.

Both EPF and NPS have their advantages and disadvantages. For example, in the case of the Employee Provident Fund (EPF), the investments go predominantly to debt instruments, while the National Pension System (NPS) offers investors 3 investment options: stocks, corporate debt, and government bonds. Therefore, experts say that NPS allows its investors to have greater exposure to stocks, and investing in them can generate higher returns.

EPF

In the case of the EPF, the employee must make a contribution of at least 12 percent of his salary per month. Along with the employee, the employer also matches the contribution and contributes up to 12 percent of the employee's base salary to EPS. These contributions go to the employee's retirement fund. In addition, the employee can voluntarily increase his participation in the EPF contribution.

For employees who earn more than Rs 15,000 per month, investing in EPF is not mandatory, however, for those whose income is less than Rs 15,000, they must contribute. If an IMF investor wants to withdraw from her stock set, she can withdraw the full set of documents only when she is 58 years old. However, partial withdrawals can be done under certain conditions, such as house construction, education, medical problems, etc., but only to a certain extent. Furthermore, the EPF falls under the category of EEE (Exemption Exempt) as it is exempt from tax not only on accrued interest but also accrued on investment withdrawals of up to Rs 1.50 lakh under Section 80C.

NPS

Unlike EPF, NPS is a completely voluntary contribution plan. An investor must open an NPS account alone. The minimum NPS contribution is set at Rs 500 on the first level and Rs 1000 on the second level accounts. There is no maximum investment specified for NPS accounts.

In the case of NPS, once the subscriber reaches the age of 60, she can withdraw a lump sum equal to 60 percent of her group. However, one of the biggest drawbacks of NPS is that after withdrawing it is mandatory that the remainder of the 40 percent balance is invested in the annuity plan. Partial withdrawals can be made up to 25 percent of a subscriber's NPS savings, but only after the 10th year of subscription.

With NPS subscribers, they enjoy full tax exemption up to a limit of Rs 1.5 lakh under Section 80C. Additionally, subscribers get a tax credit of up to Rs 50,000 under Sec 80CCD (1B). With respect to the employer's contribution to the NPS Employee Account, employees can also claim a deduction under Section 80CCD (2), up to 10 percent of base salary plus the cost for allowances.

Conclusion

Choosing a single investment tool for such an important part of life can be confusing. Not investing in the right instrument could mean that you are losing the potential return on your investment. Therefore, it is better to understand these investment tools correctly to make an informed decision.

NPS and EPF have their pros and cons. Therefore, experts suggest that investors planning to retire should choose a combination of both schemes to benefit not only from the NPS returns on the EPF, but also from the zero risks of the EPF and the tax benefits of Rs 2 lakh, together.

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