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Which is good for retirement – EPF or NPS?

Retirement is without doubt one of the most essential levels of any employment which each and every particular person has to endure this part. There are other ways to go this part fortunately and easily like investing in mutual funds, shares, actual property however probably the most frequent devices amongst them are EPF and NPS.

The latest buzz by the Govt of India to Touch upon Modification within the Staff Provident Funds and Miscellaneous Provisions (EPF & MP) Act, 1952 has made us revisit two essential financial savings schemes, The NPS and EPF. There are some new proposals relating to those schemes. Let’s take a look into these proposals

One of many adjustments which the Authorities has proposed is the change in contribution quantity by an worker and employer. Presently, the contribution by the employer in the direction of EPF is 12% of fundamental + DA, whereas an worker can contribute greater than that. It’s being proposed to cut back the identical to 10%, each by worker and employer.Other than this, there are new proposals to extend penalty quantities for employers who fail to observe the laws of the Act. The EPF will not be a lot affected by the brand new proposals however provides us a thought to know, evaluate it with NPS, one other up to date pension scheme. 

What are these pension schemes?

EPF: Worker Provident Fund – It’s a pension scheme, which helps an worker accumulate a corpus for retirement pensions. For any employed one that earns a minimal of Rs.15,000 per 30 days, 12% of fundamental wage + DA is deducted month-to-month in the direction of EPF contribution and that is necessary.

NPS: Nationwide Pension System – That is additionally a pension scheme however the contribution is voluntary. On this a subscriber should make investments a sum of Rs.100 on the time of registration. Although there isn’t a minimal contribution requirement per yr, it is strongly recommended {that a} contribution of at the very least Rs.1000 per yr is made to make sure an inexpensive pension after retirement.  

What’s the Composition of EPF & NPS?

For the investments to develop, EPF accumulations are invested in pension funds that are nothing however purely debt devices like bonds, NCD’s and CP’s supplied by corporates and authorities. As a person investor, one doesn’t have any management over such investments. In NPS one has an possibility to decide on their funding avenues. NPS affords two approaches as beneath:

  1. Energetic alternative: On this the investor is given possibility to decide on their fund supervisor and the ratio of funds to be invested amongst
  •  Asset class E – Fairness and associated devices
  • Asset class C – Company debt and associated devices ·
  • Asset class G – Authorities Bonds and associated devices ·
  • Asset Class A – Different Funding Funds together with devices like CMBS, MBS, REITS, AIFs, Invlts and so on.
  1. Auto alternative – There’s a Lifecycle Fund and the investor has to pick a Pension Fund Supervisor and his / her funds will probably be invested as per the Life cycle fund matrix on the premise of the age of the subscriber.

Comparability between EPF & NPS:

As an investor one can have a look at the next to check each.

Comparable EPF NPS
Authority EPFO shaped beneath Staff’ Provident Fund and Miscellaneous Provisions Act, 1952 NPS shaped beneath  Pension Fund Regulatory and Growth Authority (PFRDA)
Necessary Sure for worker incomes greater than Rs.15,000 per 30 days Voluntary
Min/Max Contribution The minimal contribution is Rs.1800/month and the utmost is limitless. The minimal contribution is Rs.500 in Tier I and Rs.1000 in Tier II and no most restrict.
Who can Contribute? The wage degree needs to be equal to or larger than Rs.15,000 per 30 days. Any particular person can contribute
Funding construction Govt Securities – Min 45%, Max 50%

Debt Securities and Time period deposits of banks – Min 35%, Max 45%[Old]

Min 20%, Max 45%[New]

Cash Market Devices -Upto 5%

Equities/ETF’s/Index funds – Min 5%, Max 15%


Alternate Investments – Upto 5%


Energetic alternative: Particular person has an possibility to decide on his funding construction

Auto alternative:

(i) LC75 – Aggressive Life Cycle Fund: This Life cycle fund supplies a cap of 75% of the overall property for Fairness funding.

(ii) LC50 – Reasonable Life Cycle Fund: This Life cycle fund supplies a cap of fifty% of the overall property for Fairness funding.

(iii)LC25 – Conservative Life Cycle Fund: This Life cycle fund supplies a cap of 25% of the overall property for Fairness funding.

Lockin interval Until retirement Until age of 60 years
Anticipated progress 8.65% every year Will depend on the asset allocation
Untimely withdrawal Allowed beneath sure situations like medical emergency, marriage, residence buy or compensation of residence mortgage or repairs and renovation, unemployed for greater than 2 months   Allowed beneath sure situations like medical emergency, marriage of kids, greater training of kids and residential buy or development supplied solely home.
Maturity quantities Complete corpus 60% on the age of 60, relaxation to be utilized for buying of annuity
Taxation Contribution is exempted, Development is exempted and Withdrawal is exempted In Tier I, for presidency workers, exemption upto 2 Lakhs. For others exemption upto Rs.50,000


Retire Properly

An instance of Selecting EPF Vs NPS

Ajay is 25 years previous, he’s married and has a son, Suraj who’s 1 yr previous. Ajay is at present incomes Rs.75,000 per 30 days and is spending Rs.35,000/month. Based mostly on his life-style he’s aiming for Rs.50,000 per 30 days as pension put up retirement i.e. 60 years of his age till 85 years of his life. Now primarily based on his requirement, let’s see what quantity of month-to-month funding he must do and evaluate such funding in EPF and NPS to know a greater product. Ajay would want approx. Rs.6 Crores as corpus on the date of retirement to realize his retirement purpose. The choices accessible to realize the above talked about corpus are both he can contribute in the direction of EPF or NPS or a mix of each.

What when you select Worker Provident Fund (EPF) ? 

Assuming he chooses EPF as his retirement automobile, the month-to-month contribution needs to be Rs. 22100, with the prevailing rate of interest of 8.65%. on this state of affairs he’ll solely get a tax good thing about Rs. 1,50,000, whereas remainder of the contribution of Rs. 1,15,000 is taxable.

What when you select Nationwide Pension System (NPS) ? 

Assuming he chooses NPS as his retirement automobile, the month-to-month contribution needs to be Rs. 17800, with the common return on funding of 9.5%. on this state of affairs he’ll get a tax good thing about Rs. 2,00,000, whereas remainder of the contribution of Rs. 13,000 is taxable, that is in case he’s a authorities worker or else the max profit is restricted upto Rs. 50,000 .For those who have a look at threat elements, EPF is uncovered to rate of interest threat, which implies periodical revisions by the federal government might result in fall in rates of interest over lengthy intervals. On the identical time NPS attracts market threat, the place there’s excessive volatility resulting in variable returns, attributable to some portion of publicity in the direction of fairness. Contemplating the retirement advantages, EPF permits to withdraw all of the corpus Rs.6 Crores and selection of utilization is with investor, whereas in case of NPS investor can solely withdraw 60% of the corpus and the remainder of the 40% he has to compulsorily buy annuity. 


Although EPF and NPS have their very own deserves and demerits, it’s advised to go for a mix of each schemes to make the most of NPS returns over EPF, Taxation advantages of Rs.2 Lakhs(if invested in each) and Danger in EPF as it’s just about zero. 


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Creator: Nagarjuna Reddy, CFP (Licensed Monetary Planner)

Nagarjuna is a CFP and one in all our senior monetary planners. He is part of our Funding Advisory Workforce. He isn’t just captivated with monetary planning however believes in placing the shopper’s greatest pursuits first. Nagarjuna sees his dream fulfilled when he sees a constructive affect of monetary planning in his shoppers’ lives.

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