EPF or NPS: Between March 2021 and February 2022, the Employees’ Provident Fund Organization (EPFO) added 1.11 crore subscribers, while NPS enrolled 93.6 lakh in the entire financial year 2021-22. On different scales both seem best. Let’s understand which one works better?
EPF or NPS: In view of future financial security, most people go through retirement planning. Two options are most popular and important for retirement or pension – one is Employees’ Provident Fund (EPF) and the other is National Pension System (NPS). Now the question arises that who is the best among the two.
Between March 2021 and February 2022, the Employees’ Provident Fund Organization (EPFO) added 1.11 crore subscribers, while the NPS enrolled 93.6 lakh in the entire financial year 2021-22. Even though most companies offer EPF, there are also income tax benefits offered by NPS. Let’s understand which one works better?
Saving for Retirement
Both these investment options aim at saving for your retirement. Hence, they discourage short time or quick withdrawals. Their aim is to deposit a hefty amount for you when you retire after decades of deposits. EPF emphasizes on the returns that are received every year. The Government of India guarantees its returns. When you reach your retirement, you get a lump sum amount.
NPS Thrust on Compounding
NPS is a defined contribution scheme, where your money is invested in equity and debt markets. Its purpose is to compound your every month’s contribution and convert it into a big amount till retirement so that you can get a good pension.
EPF is an employee benefit scheme (only salaried individuals get EPF benefits), whereas anyone in any profession or work structure can use NPS to save for their retirement.
75% of
NPS Equity In NPS, you have the option that you can specify how much of your money can be invested in equity. But its maximum limit is 75 percent of the monthly contribution. In EPF, you have no control over where your money is invested. It can invest between 5 percent to 15 percent of the fund in equities.
What to invest in
Experts say that wherever it is relevant and possible, we encourage clients to invest in both. Both have different purpose. EPF being a guaranteed income works well for essential retirement expenses. At the same time, NPS is a better option for other additional expenses or pension.
Tax exemption
There is a provision of tax exemption for both EPF and NPS. For both, you can get a deduction of up to Rs 1.5 lakh from taxable income under section 80C of the Income Tax Act, for the amount to be invested. For NPS, you can get an additional deduction of Rs 50,000 under section 80CCD (1B).
