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NPS or EPF or both: What should I opt?

October 30, 2018
In Indian scenario, NPS (National Pension Scheme) and EPF (Employees Provident Fund) are two viableoptions for ensuring a financial cover in the absence of a regular income or as a corpus that can be used in times of need. NPS is a government-sponsored pension scheme thatwas launched in January 2004 for government employees and was later on opened to employees from all sectors in 2009. A person who subscribes to NPS can contribute regularly in a pension account during her/his working life, can withdraw a part of the corpus and use the remaining corpus to buy an annuity or any relevant pension product. On the other hand provident fund is a pension fund that is meant to provide employees with a lump sum payment at the time of exit from an organization and the contribution is equally divided between the employer and the employee. There are key differences between EPF and NPS that are listed here:
  1. NPS is basically a retirement plan in India that covers the persons who are in the unorganized sector too. Unlike NPS, EPF is meant for the organized sector employees.
  2. As far as asset allocation is concerned, NPS offers three options of equity, corporate debt and government bond whereas, EPF serves primarily as a debt instrument, with an upper capping of 15% on equity allocation.
  3. The amount of investment is different. In NPS, a yearly contribution of Rs. 6000 by the employee is the minimum requirement but in EPF, an employee has to contribute 12% of the salary towards the fund.
  4. NPS is a market-linked product whereas in case of EPF, the Central Board of Trustees of the Employees Provident Fund Organization (EPFO) declares the annual rate of interest to be paid on an annual basis (currently 8.65%).
  5. Tax benefits vary for the schemes. The investment corpus as well as the interest in EPF is eligible for income tax deduction of up to Rs. 1.5 Lakh under section 80C. However, the ranges vary in case of NPS. A deduction of up to Rs. 1.5 Lakh under section 80 C is allowed and there is a further deduction of Rs. 50000 over and above what the contributor can claim under section 80CCD(1B). Besides, under section 80CCD (2), an employee is also allowed to claim deduction against the contribution made by the employer of up to 10 per cent of the salary (basic salary plus dearness allowance). There is no limit on this deduction. However, the returns earned on NPS are not taxed but there is tax on 40 per cent of the withdrawal amount.
  6. In NPS, 40% of the accumulation is to be invested in annuity or pension product and this is mandatory whereas in EPF, the employee can withdraw the entire corpus at the time of retirement.

Opting for EPF or NPS is a matter of choice based on specific needs and projected requirements. Contrary to some views, EPF and NPS both serve as complimentary and two varying modes of investment returns and the best course is to opt for both. Given the fact that both NPS and EPF offer different benefits of guaranteed return investment, investing in both is the best option that you have.

HDFC Life offers several investment and savings plans for strengthening your financial core. For further details, click on the mentioned link: https://www.hdfclife.com/savings-plans

Plan Your Retirement Now

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