EPF vs PPF vs NPS: Which retirement scheme is meant for you?

Building a stable retirement corpus is one of the most important aspects of financial planning. Starting early not only gives your investments more time to grow through the power of compounding but also helps build a corpus that can support your lifestyle after you you stop receiving a regular income.

Some of the most popular retirement-focused savings options in India include the Employees’ Provident Fund (EPF), Public Provident Fund (PPF), and National Pension System (NPS).

While each scheme is aimed at helping individuals accumulate long-term savings, they differ in terms of eligibility, contributions, returns, tax benefits, and withdrawal rules. Here’s how EPF, PPF, and NPS compare and which retirement scheme is meant for you.

Employees’ Provident Fund (EPF)

EPF is a mandatory retirement savings scheme for salaried employees working in eligible organisations. The employee should make EPF contributions of ₹1,800 or 12% on the basic salary and the dearness allowance. The employer must also make an equal contribution to the EPF account, where a portion of the contribution goes towards Employees Pension Scheme (EPS).

• Government decides the interest rate: The centre reviews the interest rate of EPF each quarter, making it a stable savings options with assured returns. The current EPF interest rate of 8.25% per annum.
• Interest earned on EPF is partially tax-free: For private-sector employees, interest on accumulated contribution up to ₹2.5 lakh is tax-free, while interest on the employer’s contribution is entirely tax-free.
• Tax benefit on contribution: An employee’s contribution to the EPF account is allowed as a deduction up to ₹1.5 lakh under Section 80C of the Income-tax Act. This is available under the old tax regime.
• Partial withdrawal allowed: You can make a partial withdrawal for special purposes such as marriage, education, medical emergencies, unemployment and home purchase.

Public Provident Fund (PPF)

Unlike EPF, PPF is available to all Indian residents. It is also a government-backed scheme with assured returns. The minimum annual investment must be ₹500 to keep the account active, and a maximum of ₹1.5 lakh is allowed annually.

The lock-in period in PPF is for 15 years, and after that, it can be extended in blocks of five years as many times as your want. It currently offers 7.1% annual interest rate on contributions.

• Entirely tax-free scheme: PPF comes with an exempt-exempt-exempt (EEE) tax status, meaning your contributions are deductible up to ₹1.5 lakh per year). The interest accrued is also tax-free and maturity proceeds that you receive upon withdrawal are exempt from tax as well.
• Partial withdrawal allowed: Partial withdrawal from a PPF account is possible when the account has been operational for at least 5 years.
• Loan facility against PPF corpus: A loan against PPF allows you to borrow money using your PPF balance as collateral. An account holder can avail this facility between the third and sixth financial year of opening your PPF account, though the timeline varies between banks.

National Pension System (NPS)

NPS is a government-backed, voluntary retirement scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is open to all Indian citizens, including salaried and self-employed individuals.

This scheme allows subscribers to build a retirement corpus through investments in a mix of equity, corporate bonds, government securities, and other asset classes, making returns market-linked.

Since NPS invests in market-linked instruments, returns are not guaranteed and carry a moderate level of risk as compared to EPF and PPF, though investors can choose their preferred asset allocation based on their risk appetite.

• Open to all: Any Indian citizen between 18 and 70 years can open an NPS account.
• Flexible withdrawal: Subscribes can withdraw up to 80% of the corpus, while at least 40% must be used to purchase an annuity for a regular pension. If accumulated NPS wealth is up to ₹8 lakh, you can withdrawn the entire sum as a lump sum at retirement.

Can you invest in all three schemes?

Yes. If you meet the eligibility criteria for each scheme, you can invest in EPF, PPF, and NPS simultaneously. Since each brings a different purpose and features, investors may use a combination of the three to build a diversified portfolio for retirement purposes.

The choice ultimately depends on factors such as your employment status, investment capacity, risk appetite, tax planning needs, lock-in period, and withdrawal rules.