Which is Better: EPF or NPS?

Employee Provident Fund (EPF) and National Pension Scheme (NPS) are two savings options that have a lot of benefits. Though both schemes enjoy tax deductions, NPS has been reported to have received major tax breaks. Here are a few differentiating factors of EPF and NPS:

• Employee Provident Fund or EPF is a mandatory scheme, where employees whose monthly income is around Rs 15,000 are added to the EPF account by their employers. On the other hand, National Pension Scheme or NPS is a voluntary scheme, where the contribution depends on the subscriber. This makes investing in NPS more flexible than EPF.

• For EPF, around 12% of the basic pay is contributed by the employee, with the employer contributing an equal amount towards the same. No matter the amount of the basic pay, 24% goes towards EPF. In NPS, a minimum investment of Rs 6,000 per annum is required.

• There are no investment charges for EPF. However in case of NPS, fund management fees are charged at 0.102% for government employees and private sector employees have to pay 0.25%.

• EPF normally invests in safer products such as bonds or securities of government-owned companies. NPS, on the other hand, can invest around 50% in equities. One of the benefits of investing the corpus in equities can give better returns in the long-term.

• In EPF, the returns are guaranteed, with fixed interest paid throughout the year. There are no guaranteed returns in NPS.

• In EPF premature withdrawal for specific purposes such as marriage, construction of the house, property buying, or hospitalization and treatment of serious illnesses, can be done, without closing the account. The EPS section can be partially withdrawn till the individual turns 50. Premature withdrawals from NPS can close the account. Only 20% of the funds from NPS can be withdrawn, while the rest 80% has to be invested in annuity.

• It is not compulsory to contribute every month towards EPF. But with NPS, regular contributions are a must.

These were some factors that differentiate EPF from NPS. Employees can now opt for contributions towards NPS over that of EPF. No matter which one of the investment options you may choose, it is always important to read the offer documents.