Why NPS is the best retirement option compared to EPF and PPF ?

The most important part of an Individual is planning for retirement. Retirement planning is the fund one sets aside to enjoy, pay medical expenses or just maintain the same standard of living when an individual is no longer working. To aid in saving and help individuals have a better retirement life a lot of pension schemes are introduced by the govt.

Let us understand all the three schemes individually:

NPS: National Pension scheme has been getting a lot of attention off late, due to the tax benefit and also the relaxation of the tax treatment of National Pension Scheme corpus at maturity. It has been specially designed to offer pension and the contribution to the fund can be controlled by you.

What is great about NPS?

1. It provides a tax benefit up to INR 1 Lakh.

2. It invests in equity as well, which means you get higher returns when you retire.

3. You do not have to make a phased withdrawal, as earlier. The money can be    withdrawn when needed.

4. NPS is Exempt; Exempt taxed which means you are taxed when you receive the money.

What Is Employee Provident Fund or EPF?

This fund as the name suggests is for salaried employees, where the employer contributes 12% of the basic salary+ DA each to the provident account of the employee. This fund would generate 8% per annum until the retirement age.

What is Public Provident Fund?

PPF or the Public Provident Fund is another govt. Scheme for unorganized/unsalaried employees. Anyone can contribute to the PPF account, unlike EPF. PPF account is safe and offers assured returns. It also has a higher rate of interest than EPF.

Comparison between the three pension funds NPS/EPF/PPF:

1.    Who can open the Account?

While NPS and PPF can be opened by any Indian, EPF can be opened only by a salaried employee. NRI’s cannot open PPF account. PPF and NPS can be opened at any post office or any authorized banks in India.

2.    Rate of Interest/Returns:

•  NPS does not carry any precise interest rates as the funds are invested in      different options. For Financial year 2014-2015 (9 Months Period) NPS          scheme earned between 18.9% to 20.9%. The SIP returns based on the      scheme chosen by the individual, since its inception in 2009. SIP has              given a return of 10-12.5%.
  
•  EPF, on the other hand, offers a return of 8.75% per annum.
  
•  On the contrary, the PPF interest rate was 8.7% per annum. When a        comparison is made NPS scores higher in terms of returns.

3.    Tax Benefit:

The amount that is invested in these schemes is tax exempted under section 80C up to INR 1.5 Lakhs. Effective 1st April 2015 an additional benefit of 50000 is available for NPS under section 80CCD (ib).

4.    Period of Investment:

•  EPF would be active until retirement or when the individual gives a resignation  whichever is earlier, transfer from one company to another is possible in case of EPF.
  
• NPS is active until the retirement age of 60 years. However, only an amount of  20% of the total investment can be withdrawn before retirement age. An amount of 40% as the annuity is where one would get a lifelong pension.
  
• PPF is opened for 15 years and can be extended to another five years upon maturity.
  

5.    Loan Option:

•  In Case of EPF, one can apply for a loan and then withdraw your investment to  the maximum extent.
  
•  In NPS there is no loan option
  
•  PPF, on the other hand, can withdraw only 50% of the balance available at the  end of the 4th year and upon 6th year onward. Part withdrawal is possible not  full.
  

 

6.    Maturity Returns:

• Maturity returns from EPF are tax-free and are provided to an employee if     he/she is in continuous service for five years. If the employee resigns before five years, the maturity amount will attract tax if withdrawn.
  
• Interest on NPS is taxable on indexation method
  
• PPF returns are tax-free.