EPF Vs NPS Vs PPF – Which is better investment option?

EPF Vs NPS Vs PPF-Which is better investment optionEPF Vs NPS Vs PPF – Which is better investment option?

This post is based on request from Vikas to write about EPF Vs NPS Vs PPF on suggest a topic. Provident fund or pension schemes provide good security with stable returns and they are one of the best retirement options. New Pension Scheme (NPS) / National Pension Scheme, Employee provident fund (EPF) and Public Provident Fund (PPF) schemes are some of the pension and provident fund schemes where individuals can save money for retirement. However their unique features would help individuals to take a decision as to where to invest. In this article we would discuss about EPF Vs NPS Vs PPF, their features and which is a better option.

Also read: EPF Vs VPF Vs PPF – Where to invest?

What is New Pension Scheme (NPS) / National Pension Scheme

NPS is a good retirement scheme for employees of Government and private employees. NPS can be taken by all citizens of India. NPS is available in 3 approaches. Tier-I, Tier-II and Swavalamban Scheme. NPS was already available for government employees and it is extended to other citizens of India w.e.f. 1-May-2009.

Tier-I: You cannot withdraw the amount up to retirement. Government employees have to mandatorily invest 10% of their salary into NPS Tier-1 account. Tier-1 account is mandatory to open for Tier-2 account.

Tier-II account: You can invest and freely withdraw money from this Tier-II account. Minimum contribution is ₹ 1000 during registration and ₹ 2000 for the entire year. You can contribute for a minimum of 4 contributions per year.

Swavalamban account: This type of NPS is provided for encouraging poor workers. Under this scheme, Govt of India would pay ₹ 1,000 per year for the first 4 years as its contribution. However there are several conditions attached to this.

What is an Employee Provident Fund (EPF)?

EPF is for salaried employees where the employer and employee would contribute to 12% of basic + DA each into this provident fund account. This would generate interest of 8%+ per annum till the retirement age.

What is Public Provident Fund (PPF)?

PPF is a government scheme meant for un-organized sector / non-salaried employees. Anyone can contribute to PPF account and get safe and assured returns. PPF currently has a higher rate of interest compared to EPF interest rates.

EPF Vs NPS Vs PPF

Now, let us see the difference between these 3 schemes.

1) Who can open the account (EPF Vs NPS Vs PPF)

EPF can be opened only by salaried employees in India. On the other side, NPS and PPF can be opened by any Indian. NRI’s cannot open a PPF account.

2) Interest rates (EPF, NPS and PPF):

  • The EPF interest rate for FY2012-13 was 8.5% per annum.
  • The NPS does not carry  any specific interest rates as they invest in various investment options. For FY 2012-13, NPS schemes earned between 12% to 14% interest rates based on the scheme chosen by an individual. In future it is expected that it may not earn similar interest rates, but the interest would be higher compared to other options.
  • On the other hand, the PPF interest rate for FY2012-13 was 8.8% per annum. Among all these options NPS scores high in terms of interest.

However interest rates on provident fund schemes would be decided by the Govt. of India every year.

3) Tax Benefit (EPF Vs NPS Vs PPF):

The amount invested in these 3 schemes are exempted from tax under section 80C up to ₹ 1 lakh.

4) Period of investment (EPF or NPS or PPF):

  • EPF account would be active till retirement or when an individual resigns from the organization whichever is earlier. Transfer from one company to another company can be done for EPF.
  • The NPS account would also be active till retirement of 60 years. However you can withdraw the money up to 20% only before retirement. Hence this is not a liquid investment.
  • On the other side, PPF account is opened for 15 year period. You can extend this account for another 5 years upon maturity.

5) Loan option (EPF Vs NPS Vs PPF):

  • For EPF, you can apply for a loan and withdraw your investment to a maximum extent. It is a somewhat liquid investment option.
  • For NPS, you do not have any loan option.
  • PPF on the other hand, you can withdraw only 50% of the balance available at the end of 4th year upon 6th year onwards. Means you cannot withdraw full or maximum extent.

6) Employer contribution (EPF Vs NPS Vs PPF):

  • For EPF, the employer has an obligation to contribute 12% of basic + DA. Means this would straight away add to your retirement savings.
  • For NPS or PPF there is no such employer obligation to contribute.

7) Mandatory savings from employee (EPF Vs NPS Vs PPF):

  • For EPF, the employee has to do 12% contribution on basic and DA per month.
  • However for NPS or PPF there are no such mandatory savings.
  • However if they open any such account, they need to invest minimum investment required to keep the account open.

8) Taxation of maturity returns (EPF / NPS / PPF):

  • Maturity returns from EPF are tax free provided if an employee is in continuous service for 5+ years. If the employee has quit before 5 years and needs maturity amount, it would attract tax.
  • Interest on NPS is taxable.
  • On the other hand, returns from PPF are tax free.

Also read: Complete guide on NPS

9) Scheme Style (EPF, NPS and PPF)

EPF and NPS are more designed to get regular pension after retirement. PPF on other hand is good option to accumulate amount for retirement.

Conclusion on where to invest:

  • If you are salaried employee, you would not have a choice about EPF as this is a mandatory provident fund scheme.
  • However if you are salaried or non-salaried employee or look for high returns for retirement savings without liquidity option, you can contribute to New Pension Scheme (NPS) / National Pension Scheme to enjoy high returns. Last year returns are even comparable with what we get for equity mutual funds.
  • If you want to invest in liquid investments or for tenure of 15 years only, invest in PPF.

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Suresh
EPF Vs NPS Vs PPF – Which is better investment option

Suresh KP

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57 comments

  1. Why NPS intrest is taxable, how much tax is deducted and if it is taxable why should we invest bcz right now we can use this as tax savings but in the end tax will be deducted, let's say I will get an amount of 30 lacs when I am 60 how much will be deducted as tax?? 

  2. I Have a questine about NPS & EPF. I have already opened a NPS account. But now my Company forced me to open a EPF account. My questine is can i opened both of account. If yes then can it be harmful to me in future ?

    Please Replay the possible sollution to me As fast as possible.

  3. If I invest on PPF for 15 years then after 15 years where I have to deposit my money to get some fixed return for my retirement expenses.

    1. Hi Sukant, After 15 years, you can invest in regular returns generating options like Post office MIS Scheme or Bank FD’s. If you can take some risk, you can invest in debt mutual funds

  4. Pl calculate my pension and total 60 percent return my age is 50 and I'm planning to invest rs 5000pm

    1. Dear Sangita ji,

      NPS provides market linked return. Therefore, it is difficult to comment about the corpus you will accumulate by the time you retire. Let's assume you earn a return of 10% p.a.. In the next 10 years (At Rs 5,000 per month), you would have accumulated about Rs 10 lacs in your NPS account. Please note the assumptions.

      At 60% annuity, you will purchase for Rs 6 lacs. Let's assume annuity rate is 6% when you purchase.

      Hope this answers your question.

      You will get annual income of Rs 36,000 per annum (Rs 6 lacs X 6%) or Rs 3,000 per month.

  5. Dear Mr. SUresh,
    I wants to invest in pension plan for monthly income. I wants to invest immediate lumpsum of 1200000 rupees. Can i invest in NPS pension plan? Whta amount i can earn per month in NPS? Please reply.

  6. Hi Suresh,
    I am working for private company, I already reached 1.5 Lac under 80C using(PPF+LIC+PF).

    Can you suggest me if I open a NPS account depositing 50,000 P.A , can I get extra tax benefit of tax relief excluding 1.5 Lac under 80C over the total taxable income.

    Thanks

  7. I am working in a Private sector.I read all about the schemes of EPF/NPS/PPF but still i am in confusion to choose the best scheme .My age is about 40. I just want to open a account to invest money.Just suggest me which one will be the best scheme for me as per my job to invest to get higher returns/benefits from NPS/PPF ?

    1. Debashish, for higher returns you should go for NPS as it is undoubtedly a safer option and also has interest rates higher than EPF of PPF.

  8. I am working in a Public Sector Undertaking.

    My company is contributing its share in NPS but employee is not allowed to contribute in the scheme. Is the company doing correct thing in other words is it inline with the regulatory norms?

    With the above scenario will i get my accumulated sum at retirement ? 

    And can i open a seperate "All Citizen NPS account "?

  9. In “Taxation of maturity returns”, it is mentioned as “Interest on NPS is taxable”. What is the % of taxation or what is the calculation

  10. I just joined the Govt job as there is no pension the govt ha started nps. But there is no fixed rate of interest can i go for epf. Whether nps is equity lonked. Is there any guarantee from govt thate in case of crash of share mkt the employee will get minimum amount of hos contribution.

  11. Hi

    I have plan to start New Pension scheme.So i have some question with you.
    1) I am working in private sector ,So may be my retirement age is 40 for example.So can i get the amount at age of 40? or 60th only i can get?
    2) for one year is one time amount paid possible?
    3) every year can deposit different amount with different period?

  12. Sir i have PPF account but i want PPF account to be converted into NPS. Is it possible sir ???
    If yes, what is the procedures for the same

  13. now one more benefit can be enjoyed in NPS i.e. upto Rs. 50000 more deduction than maximum deduction available u/s 80C of up to Rs. 150000 w.e.f. AY 2016-17. Thus total deduction of Rs. 2 lacs can be availed now.

    Rajat Pathak

  14. Hi Suresh,
    If a PPF is extended for 5 years after the original 15years, can the account holder withdraw the amount from his/her account? Will it attract any tax or penality?

  15. Hello

    I want to know that can a person having EPF accounts is eligible to open an PPF account?

  16. Sir,i am border security force persion joining date 2007 new pension scheme holder my mondly pension started age how?

  17. Hai,

    u had given really very good info. I wnated to Know one thing,where can i open this NPS.at maturity will i get the total money at a time or will i get it as pension.please make me clear.

    1. Dear sir/mam/friends,
      I need one clarification in the National Pension Scheme. I am 32 years old. working in a private corporate company.
      I would like to invest in NPS scheme. my doubt is, suppose I will pay the monthly premium towards NPS upto 10 years, (up to my 42 age). after that, I am not working @any company.so, I am unable to pay monthly premium towards NPS.
      so, in the situation, when I will get the retirement benefits from NPS? ie, 42 age can I get returns OR after 60 years ?
      and how it is the returns interest percentage ?

      what about Returns :

      another one doubt, suppose I paid up to 60 years successfully, I will get the returns from NPS,@ lump sum amount at the age of 60 year OR I will get returns (like a pension) at every month after 60 years ?
      please clarify it.

      thanks in advance.

  18. Hi Suresh,
    I have a question regarding PPF a/c. Initially PPF a/c can be opened for 15 years only. Then One can extend it for another 5 years. How many times can one extend this. For example I am now 30 years old and have a PPF a/c. I want to continue it until my 65 years of age. Is it possible. Thanks, Anupam

    1. Anupam, You can extend for 5 years at a time for any number of years beyond 15 years. However there are certain conditions like you should have yearly contributions etc. I would cover this in one of my next article.

  19. Hi suresh, how much amount of contribution will be deduced in all scheme for tax. If we contribute 6000 p.a. the total amount will be deduced in tax payabl.

  20. Hi … I have changes two jobs in last 3 years. PF got deducted at both places but I never transferred to new company. Now, can I open a new NPS account on my name and opt for tranferring those two PF amounts directly to NPS account? if yes, is thers any TDS effects?

  21. Dear Suresh,

    There are few things about NPS which i would like to share.

    1.At present the Maturity amount is taxable.

    2.Now the name is changed to National

    1. Hi Sorko, I do not have idea about maturity taxability. Do you have any references so that I can correc this article. Regd point no.2, I have included this as aditional name. Thanks.

      1. Agree with Sorko, NPS is really a Tax deferred account, means your contibutions are tax free ( will reduce your taxable income of that year by same amount), You can contibute upto 10% of basic however at withdrwal it would be added to your income for the year, You will be allowed to withdraw upto 60% and rest as equal monthly installments (annuity). Generally at retirement you income will be go down so its beneficial.

  22. Dear Sir,

    Really appreciate your comparision between EPF, PFF & NPS.

    Can you kindly include the Govt. Tax free bond in mentioned comparision?

    1. Hi Tejas, Tax free bonds are liquid investments and not meant for retirement plan, hence they need to be excluded. Under tax free bonds, you would get tax free returns, but current bonds are liquid as they can be sold in open market. You would get only your invesmetn amount at the time of maturity.

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