Difference between NPS and EPF

December 13, 2012

Personal Finance

In my earlier post I have explained the basics concepts on national pension system . NPS is pension scheme for the non-government employees and it will be considered as as the alternative investment for the retirement planning. If some one wants to plan for the retirement savings, there would be several options he can choose from the list. NPS is one among them.

If you are salaried person, then you are already familiar with the EPF. This is the strong contender for the NPS scheme when it comes to planning for the retirement. This article explores the serious differences between these two schemes and suggest you the best one. If you have any questions, please post it in the comments section. Subscribe here for receiving the future articles. Also join us in the face book fans page to write your comments.

What is EPF?

There is no need to provide much explanation to this subject. As every salaried employees already paying the EPF contribution with their employers. EPF is compulsory retirement savings instrument deducted by all the companies if they employ more than 20 employees in their company. Every employee contributed 12% of basic and dearness allowance every month from their salary. Interest rates for the savings will be announced every financial year by the central government. The current interest rates on EPF is 8.25%. If you want to understand more about the EPF, please read the below list of articles.

Difference between NPS and EPF

  • The NPS is a voluntary retirement savings scheme in which you can contribute at least Rs. 6000 every year. Where as, EPF is the mandatory retirement savings scheme for all the employees.
  • The contribution towards EPF is tax exemption under the section 80C. Where as NPS offers additional tax deduction on employer contribution up to 10% of basic and DA. This is over and above the Rs. 1 lakh limit of section 80C.
  • The EPF money is not invested in equities. It is just the normal savings scheme where government set the fixed interest rates every year. The interests are compounded on monthly basis. Where as NPS savings are invested on equity market, which gives the better returns compared to the EPF savings.
  • EPF investments can be withdrawn before the maturity. There is no need to foreclosure the account. Where as NPS, investor can not do the premature withdraw of money. It will lead to the closure of account. The amount invested on NPS has very tight locked in period.
  • NPS account can be close only after the age of 60 years. EPF has no restrictions like that. If you leave the company, if you provide valid reason, then you can withdraw the whole amount.
  • EPF is only if you are working with government or a company. NPS can be maintained by non-employees to. Investors can walk into any of the bank branch and open the new NPS account.

It is not necessary for you to invest on the both the schemes. Either one of them would be sufficient. Looking into the above points, if you want the longer lock-in period and the equity exposure to your savings, then you have to consider the NPS. Otherwise if you looking for conservation scheme, then EPF is the option for you. I hope this helps you to understand these two investment options in better way. If you have any questions, please post it in the comments section. Subscribe here for receiving the future articles. Also join us in the face book fans page to write your comments.

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