EPF vs NPS Scheme: Which money option is better for retirement fund? Check experts' view

EPF vs NPS Scheme: Both Employees' Provident Fund (EPF) and National Pension System (NPS) are retirement-oriented investment tools. However, while EPF is mandatory for a salaried person NPS scheme is optional for anyone who is an earning individual. In EPF, one can claim income tax benefit under Section 80C on investments up to Rs 1.5 lakh in a financial year while in NPS, one can get income tax exemption under Section 80CCD(1B) on investments up to Rs 50,000 in a financial year and this exemption is beyond Section 80C. Therefore, the NPS is gaining popularity among the salaried class also. However, when it comes to returns, EPF is completely a debt fund while NPS has some equity exposure as well.

Speaking on the difference in EPF and NPS scheme SEBI registered tax and investment expert Jitendra Solanki said, "EPF is a mandatory investment that a salaried individual does through PF deduction from one's monthly salary. In return, the salaried individual gets the same contributory PF amount from the recruiter into the EPF account. currently, the PF interest rate is 8,65 per annum, which is highest among the debt investment options. However, when it comes to the NPS scheme, it is an optional investment option and those who are not salaried can also subscribe to this NPS scheme. Both, EPF and NPS give income tax exemption while in EPF one gets income tax exemption under Section 80C on investment up to Rs 1.5 lakh while in NPS, one gets income tax exemption beyond Section 80C on investment up to Rs 50,000 per annum."

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Further differentiating the EPF and NPS scheme, Manikaran Singhal, a SEBI registered tax and investment expert said, "Under NPS scheme, one gets two accounts — active mode and auto mode. While one is equity exposure one has debt exposure with full control to the investor as to how much exposure he or she wants in equity and how much in debt. As per the changed law, at the time of maturity, sixty per cent of the maturity amount can be withdrawal by the NPS scheme subscriber and rest 40 per cent will become annuity that will be used for giving pension to the account holder."

Batting for NPS instead of EPF, Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, "One should not invest in NPS for saving tax only. NPS can give much higher returns than EPF if one increases one's equity exposure by an extra 10 per cent and make the auto and active mode accounts in a 50:50 ratio. In such a case, one would get around 8 per cent returns on the debt NPS account while will get 12 per cent returns on equity NPS account. So, at the time of maturity, one's NPS investment would give him or her near 10 per cent returns, which is much higher than EPS, PPF or any other debt fund."

Calling NPS a better retirement-oriented investment tool than EPF, Jitendra Solanki said, "In EPF, PF withdrawal rules are much softer in comparison to the NPS. So, if someone wants a dedicated retirement-oriented fund, then NPS is a better option than the EPF and it gives higher returns than the EPF as well."