EPF vs NPS vs SIP: How Rs 12,000 monthly investment in each scheme can grow in 20 years; get examples
EPF vs NPS vs SIP: Employees' Provident Fund (EPF) and National Pension System (NPS) both are retirement schemes, where one can contribute on a monthly basis. Through SIP, one can invest in mutual funds. All 3 schemes can help one a sizeable retirement corpus in the long run.
EPF vs NPS vs SIP: Employees Provident Fund is a retirement scheme, where the employee and the employer invest monthly in the EPF account of the former's EPF account. EPF offers 8.25 per cent compound annual interest rate on this contribution. An employee needs to invest a minimum of Rs 1,800 and a maximum of 12 per cent of their basic salary and dearness allowance if they have a basic salary of at least Rs 15,000. Employees can invest in the scheme till 60 years of age. After 10 years of service or at 58 years of age, they can withdraw their amount. A portion of their salary also goes to the Employee Pension Scheme (EPS), which provides them a monthly salary post retirement.
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What is NPS?
National Pension System is also a retirement scheme, where private and government sector employees, self-employed, and individuals can contribute to their NPS accounts at least once in a financial year or monthly. They can also choose market exposure as per their risk appetite and age. They can contribute from age 18 to 75. At 60 years of age, they can withdraw up to 60 per cent of their retirement corpus and need to purchase annuity for monthly pension from the rest of the 40 per cent amount. Contributions to Tier I NPS account provides tax benefits under the old tax regime.
What is SIP?
It is a method to invest in mutual funds, where you can invest daily, monthly, or yearly to build a corpus. One can start an SIP with a minimum amount of Rs 100. NAV provides rupee cost averaging, due to which investors can build a large corpus in the long run.
Investment conditions for EPF, NPS, and SIP
Here, we will assume that an investor will start investing from the age of 25 and invest till 45. For NPS, we will take a standard 10 per cent annualised rate of return, while in SIP, we will take 8 per cent, 10 per cent, and 12 per cent returns for our calculations. The prevailing interest rate of 8.25 per cent will apply for EPF calculation.
Corpus with Rs 12,000 monthly contribution in EPF
With Rs 12,000 a month contribution in EPF, the total investment in 20 years will be Rs 28,800. Since EPF provides 8.25 per cent interest rate, the estimated amount generated in 20 years will be Rs 73,34,019.
Corpus with Rs 12,000 monthly contribution in NPS
At 10 per cent annualised growth in NPS, the estimated wealth gain in 20 years will be Rs 58,07,841, while the expected corpus will be Rs 86,87,841.
Corpus with Rs 12,000 monthly contribution in SIP (equity fund)
If we expect a 12 per cent annualised return in an equity mutual fund scheme, the estimated returns in 20 years will be Rs 81,58,288, and the expected wealth gain will be Rs 1,10,38,288.
Corpus with Rs 12,000 monthly contribution in SIP (hybrid fund)
If we expect 10 per cent annualised return in an aggressive hybrid mutual fund, the estimated gain in 20 years will be Rs 58,07,841, and the expected gain will be Rs 86,87,841.
Corpus with Rs 12,000 monthly contribution in SIP (debt fund)
If we expect 8 per cent annualised SIP returns from debt mutual fund contribution, the estimated wealth gain will be Rs 39,91,920, and the expected gain will be Rs 68,71,920.
Disclaimer
(The article is for knowledge purpose only. It is not investment advice. Do your own due diligence or consult an expert before investing.)