EPF and NPS are two instruments available with most of the salaried class to invest for retirement purposes. Both are also helpful in saving tax. The question is, which of these options is better for investment?
New Delhi . Most of the salaried classes have two investment instruments available for retirement purposes. These include the first Employee Provident Fund (EPF) and the second National Pension System (NPS). Talking about the Employees Provident Fund Organization (EPFO), it added 1.11 crore people between March, 2021 and February, 2022, while the NPS enrolled 93.6 lakhs in the financial year 2021-22. Even though most companies offer EPF, investing in NPS also offers income tax benefits. In such a situation, the question arises that which of these options is good for retirement purposes?
Investing in both EPF and NPS means saving for retirement. This is the reason why early withdrawal is discouraged in both the schemes. Both investments help build corpus through decades of compound investments that you can use in case you stop having regular income after retirement. However, there is a big difference between both the schemes here. The Government of India guarantees the return in EPF. When you reach retirement, you get a lump sum amount.
At the same time, your investment money in NPS is invested in equity and debt markets. In this, your regular contribution every month is compounded, the return from which is able to give you a regular and predictable good pension. The benefit of EPF is available only to the salaried people, whereas anyone can invest in NPS. “We encourage people to make some investments in both,” Khyati Mashru Vasani, Founder Founder, Plantrich Consultancy LLP, told Moneycontrol.
Can invest 75 percent in equity
NPS gives you a little more flexibility. This gives you the freedom to choose how much money you want to invest in equities. However, you can invest a maximum of 75 percent of your monthly contribution in this. At the same time, you have no control over where to invest money in EPF. The fund can invest between 5 and 15 per cent in equities. Tax incentives are available in both EPF and NPS.
50 thousand additional deduction in NPS
- Along with a deduction of Rs 1.5 lakh on investment under section 80C of the Income Tax Act, NPS provides an additional deduction of Rs 50,000 under section 80CCD (1B).
- NPS has a lock-in period as one can withdraw only 60 per cent of the total corpus tax free at the age of 60 years.
Benefits of compounding in EPF
- Employee Provident Fund Organization offers 8.1 percent interest rate on PF.
- Anyone can take advantage of this by letting EPF grow and taking advantage of compounding.
