NPS vs PPF vs EPF: Which investment tool is better to accumulate retirement fund?

NPS vs PPF vs EPF: Selecting the right investment vehicle is essential when planning for retirement. In India, three popular options with distinct advantages and features are the Public Provident Fund (PPF), National Pension System (NPS), and Employees' Provident Fund (EPF). However, there is no one-size-fits-all strategy. Choosing between the NPS, PPF, and EPF depends on the individual's financial goals and risk tolerance. Financial experts recommend starting retirement investments at a young age—the earlier, the better—to experience the power of compounding.

PPF vs EPF vs NPS: This comparison will help you determine which option best suits your retirement planning needs.

Public Provident Fund (PPF)

Designed by the government, the PPF is a savings plan that currently offers a return of 7.1 per cent. It provides a fixed, tax-free return with a sovereign guarantee, ideal for risk-averse investors.

“PPF's 15-year lock-in period can be broken into five years. Under Section 80C of the Income Tax Act, contributions up to ₹1.5 lakh annually are qualified for tax reductions. This is a tax-efficient investment choice since the interest gained and the maturity funds are tax-free. Given government support, the PPF is renowned for its stability and safety,” said Dr. Ravi Singh, SVP - Retail Research, Religare Broking Ltd.

Employee Provident Fund (EPF)

The Employees' Provident Fund Organisation (EPFO) manages the EPF, a retirement benefit system for salaried workers. The company and the employee contribute 12% of the base pay and dearness allowance to the EPF account.

EPFO has announced the interest rate for the financial year 2023-24, setting it at 8.25%.

"EPF is mandatory for salaried employees. It offers fixed returns with tax benefits and employer contributions, offering a balanced approach," said Edul Patel, CEO of Mudrex

National Pension System (NPS)

The NPS is a government-sponsored pension plan designed to yield retirement income. It provides two types of accounts: voluntary savings account Tier II and required retirement account Tier I.

“NPS offers market-linked returns and flexibility in investment choices, making it suitable for those willing to take moderate risks for good returns,” said Edul Patel, CEO of Mudrex

Although PPF and EPF provide stability and guaranteed returns, the National Pension System (NPS) stands out for its possible higher returns because of its equity exposure. Equities have consistently beat other asset classes over the long run, said Dr. Ravi Singh,

Hence, NPS is a strong choice for creating a sizable retirement fund. Its appeal has increased even more because of its slow lowering of equity risk as one prepares for retirement. Furthermore, the NPS presents significant tax advantages, which make it a complete option for anyone trying to protect their financial future, Singh added.

A better approach for optimal retirement planning could be diversifying the portfolio, including all assets according to the individual’s risk appetite for longer-term benefits.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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