NPS vs PPF vs EPF: Which option has helped build largest retirement corpus on Rs 10,000 monthly contribution for 15 years?

Retirement Planning: There was a time when Employees' Provident Fund (EPF) and Public Provident Fund (PPF) were the most popular retirement investment options in India. But in 2004, the central government changed the landscape by introducing the National Pension System (NPS). Initially, it was open to government employees only, but later, it was extended to private sector employees. EPF and PPF are different from NPS due to their non-market-linked status. EPF and PPF are guaranteed return schemes where investors get returns in the form of interest. The interest rates are not fixed and may change from time to time.

But NPS is a market-linked retirement scheme. An NPS account holder can choose equity exposure from 25 per cent to a maximum of 75 per cent depending on the age bracket they fall into.

Since returns also depend on equity performance, the fund's value may decrease.

However, Value Research data shows that, in the long term, NPS has outperformed EPF and PPF.

In the write-up, we will show you how even the worst-performing NPS funds have done better than EPF and PPF.

But before that, let's get to the basics of the three schemes. 

PPF

It is a government-sponsored small savings scheme run by post offices and banks.

The scheme has a 15-year lock-in period with the option of five-year block extensions.

The post office PPF scheme provides 7.1 per cent annual interest.

The scheme provides facilities for partial withdrawals from the seventh financial year onward and loan facility from the third to the sixth financial year onward.

Deposits of up to Rs 1.50 lakh in a financial year are tax exempt under Section 80C of the Income Tax Act.

The scheme falls under the exempt-exempt-exempt category, where the interest earned and the maturity amount are also tax-free. 

EPF

This is a retirement scheme where private sector employees can contribute monthly and get a lump sum at retirement.

The employee and the employer both contribute to the EPF account of the former.

An employee can contribute up to a maximum of 12 per cent of their basic salary and dearness allowance (DA) to EPF.

The employer also matches the same amount, but while its 3.67 per cent contribution goes to EPF, 8.33 per cent goes to Employees' Pension Scheme (EPS).

The employee can draw a monthly pension from the EPS account. 

EPF vs PPF vs NPS

As you can see in the graph, the Rs 10,000 monthly contribution to the PPF has turned into Rs 33.80 lakh in the 15 years.

The same investment in EPF has given Rs 35.10 lakh.

While even the worst-performing NPS account with 25 per cent equity exposure has given Rs 39.30 lakh in the 15 years, the best-performing NPS account with 75 per cent equity exposure has given Rs 52.40 lakh in the same time period.

Chart Courtesy: Value Research