EPF vs PPF vs NPS: Which One Is Better for Your Retirement Savings?

Introduction: Planning for retirement is a crucial aspect of financial planning. The Government of India has introduced various tax-saving schemes that offer multiple benefits to salaried employees. Three of the most popular retirement savings schemes in India are the Employee Provident Fund (EPF), Public Provident Fund (PPF), and National Pension Scheme (NPS). Each of these schemes has its own features, benefits, and drawbacks. This blog will provide a detailed comparison of these three schemes to help you make an informed decision about your retirement savings.

Employee Provident Fund (EPF):
The EPF is a government-backed scheme introduced under the Employee’s Provident Fund and Miscellaneous Act, 1952. It is a collection of funds contributed by the employee and the employer at regular intervals for the benefit of the employee’s post-retirement needs.

Features:
- Both the employee and the employer submit 12% of the employee’s basic and dearness allowance to the employee’s PF account, every mont.
- The employer contributes 8.33% towards employee’s EPS (Employee Pension Scheme) and the remaining 3.67% towards EPF.
- The interest rate is decided by the government; it was 8.15% in FY22-23.

Benefits:
- The EPF aims at encouraging the idea of savings among salaried employees on a monthly basis.
- It offers tax-free benefits up to Rs. 1.5 Lakh.
- Partial withdrawals are allowed under specific conditions before 5 years subject to TDS deduction.

Drawbacks:
-EPF requires you to deposit a regular amount of money throughout your professional life.
-During their working life, employees cannot withdraw money from the fund.
-The account cannot be closed earlier than retirement, except only on the death of the subscriber.

Public Provident Fund (PPF):
The PPF is a long-term investment scheme backed by the government of India, offering attractive interest rates and returns that are fully exempted from tax².

Features:
- Any amount between Rs.500 and Rs.1.5 Lakh can be deposited in a year.
- The interest rate is decided by the Ministry of Finance; it was 7.1% in Q2 FY 23-24.
- The maturity period is upon retirement.

Benefits:
- It offers tax-free benefits up to Rs. 1.5 Lakh.
- Partial withdrawals are allowed under specific conditions after completion of 5 or 7 years.

Drawbacks:
-PPF has a long lock-in period of 15 years.
-It's difficult to consistently beat inflation with the PPF interest rate.
-There is a capping of Rs 1.5 lakh per annum on deposit of amount in a PPF account

National Pension Scheme (NPS):
The NPS is a government-backed pension scheme open to all Indian citizens between the ages of 18 and 60². It encourages individuals to invest in pension accounts at regular intervals during their working life.

Features:
- Any individual can contribute with a minimum amount of Rs.6000 per year; there is no maximum limit.
- The returns range from 12%-14% depending on the fund’s performance.
- The maturity period is after 60 or 70 years of age.

Benefits:
- It offers tax-free benefits up to Rs. 1.5 Lakh.
- Only 20% of the total amount can be withdrawn before retirement.

Drawbacks:
-NPS does not provide any pension and one must buy an annuity from a private company to get a pension, which has a very low interest rate.
-NPS attracts a lot of tax upon maturity, and only a limited amount and number of withdrawals are allowed before maturity.
-There is a maximum limit on equity exposure to prevent losses, which can be seen as a significant drawback for investors aiming for higher returns.

Conclusion: Choosing between EPF, PPF, and NPS depends on your financial goals, risk appetite, and retirement planning needs. All three schemes have their own advantages and serve different purposes. It's important to understand each scheme thoroughly before making an investment decision.