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A comprehensive guide to compare EPF with other retirement options

Team AckoFeb 16, 2024

Retirement planning is a crucial aspect of financial planning that helps individuals achieve their long-term financial goals. There are several retirement options available in India, each with its own set of features and benefits. In this comprehensive guide, we will compare EPF with other popular retirement options like NPS, EPS, and Mutual Fund Retirement Plans. These comparisons will help you make an informed decision about saving for your retirement. Read on to know more.

Contents

What is the Employees' Provident Fund (EPF)?
What is the National Pension Scheme (NPS)?
Comparison between EPF vs. NPS
What is an Employee Pension Scheme?
Comparison between EPF vs. EPS
What are mutual funds retirement plans?
Comparison between EPF vs. mutual fund retirement plans
Frequently asked questions

What is the Employees' Provident Fund (EPF)?

Employees' Provident Fund (EPF) is a scheme that requires both employers and employees to contribute a fixed percentage towards the employees’ retirement savings account. The contribution is made monthly and is calculated as a percentage of the employee’s basic salary plus dearness allowance. Currently, the contribution rate is capped at 12% for both employers and employees.

What is the National Pension Scheme (NPS)?

The National Pension Scheme (NPS) is a government-sponsored pension scheme in India. It was launched in 2004 for employees of the central government and later extended to all citizens in 2009. The scheme aims to provide retirement income to individuals by encouraging them to save regularly during their working life.

Under the NPS, individuals can contribute to their pension account on a regular basis and accumulate savings over time. These contributions are invested in a mix of equities, government bonds, and corporate bonds, based on the individual's risk appetite. The accumulated savings can be withdrawn as a lump sum or in instalments after the age of 60.

Comparison between EPF vs. NPS

Employees' Provident Fund (EPF) and National Pension Scheme (NPS) are two important retirement savings schemes in India. Here's a comparison of EPF and NPS.

Parameters	EPS	NPS
Nature of scheme	EPF is a defined contribution retirement savings scheme where both the employee and the employer contribute to the employee's retirement fund.	NPS is a market-linked, defined contribution retirement savings scheme.
Investment options	EPF invests primarily in fixed-income securities such as government bonds, corporate bonds, and money market instruments	NPS offers investment options such as equity, debt, and government securities.
Tax benefits	Contributions made by employees towards EPF are eligible for tax deduction under section 80C of the Income Tax Act. Additionally, contributions made by the employer towards EPF are tax-free up to a certain limit.	Similarly, contributions made by employees towards NPS are eligible for tax deduction under section 80CCD(1) of the Income Tax Act, subject to a maximum limit of Rs. 1.5 lakhs per annum. Contributions made by the employer towards NPS are tax-free up to 10% of the employee's basic salary and dearness allowance.
Withdrawal options	Withdrawals from EPF are allowed only under certain circumstances such as retirement, resignation, or death.	NPS offers flexibility in terms of withdrawals, allowing partial withdrawals after a certain period and offering the option of a lump sum withdrawal at the time of retirement.
Returns	Returns on the EPF are guaranteed. However, the budget for 2021–22 states that amounts exceeding Rs. 2.5 lakh are taxable.	Higher returns are possible with NPS, but they are not guaranteed.

While both EPF and NPS are retirement savings schemes, they differ in terms of their nature, investment options, tax benefits, withdrawal options, and portability. It is important to understand the features of both schemes before choosing one that suits your retirement planning goals.

What is an Employee Pension Scheme?

The Employee Pension Scheme (EPS) in India is a social security scheme part of the Employees' Provident Fund (EPF) scheme. It is a retirement benefits scheme for employees of organised sectors such as private companies, government organisations, and public sector undertakings. The Employee Provident Fund Organization (EPFO) manages the pension fund, and the money is invested in government securities and other approved investments.

The EPS scheme provides a pension to employees after they retire, become disabled, or in the event of their death. The pension amount depends on the employee's years of service and the average salary during the last 12 months of employment.

Comparison between EPF vs. EPS

The Employees' Provident Fund (EPF) and Employee Pension Scheme (EPS) both are social security schemes that are part of the same program but serve different purposes.

The EPF is designed to provide a lump sum payment to employees upon retirement or when they leave their job. The amount received by the employee includes both the employee's contribution and the employer's contribution, along with interest earned on the amount over time.
On the other hand, under the EPS, the employee and the employer contribute a portion of the employee's salary to the pension fund. The pension amount received by the employee depends on their years of service and the average salary during the last 12 months of employment.

What are mutual funds retirement plans?

Mutual funds retirement plans are investment options designed to help individuals save and invest for their retirement. They are a great way to save for retirement because they offer several benefits.

Mutual funds retirement plans allow you to invest in a diversified portfolio of stocks, bonds, and other securities. Here your money is spread across many different companies and industries, which helps reduce your overall risk. Additionally, you don't have to worry about managing your investments on your own - the fund managers will take care of that for you.

These plans offer flexibility. You can contribute as much or as little as you want, and you can choose from various investment options based on your risk tolerance and investment goals. You can usually withdraw your money at any time, although there may be penalties or taxes for doing so before retirement. If you're looking for a way to save for retirement, a mutual funds retirement plan is worth considering.

Comparison between EPF vs. mutual fund retirement plans

Employee Pension Scheme (EPS) and mutual fund retirement plans are two popular investment options for retirement planning. Here are some key differences between the two.

Parameters	EPS	Mutual fund retirement plans
Contribution	Under the EPS, the contribution is made by the employer and employee, with the employer contributing 12% of the employees’ basic pay.	These retirement plans are voluntary investment options, and the contribution amount is entirely up to you.
Risk	The risk in EPS is comparatively lower as the government manages the funds and the rate of return is fixed.	The returns on mutual funds depend on the stock market's performance and, therefore, are subject to market risk.
Liquidity	EPS has limited liquidity as the funds are locked in until the employee retires or attains the age of 60 years.	These retirement plans offer high liquidity as you can redeem the units at any time, subject to exit loads.
Returns	EPS offers a fixed rate of return.	The mutual fund retirement plans offer varying returns depending on the performance of the underlying securities.
Taxation	The employer's contribution is tax-free, while the employee's contribution is tax-deductible up to a certain limit.	Long term capital gains may apply on the returns of these plans.

Frequently asked questions

Here are some common questions about comparing EPF with other retirement options.

Which scheme is better for retirement savings - EPF or NPS?

It depends on the individual's financial goals and risk appetite. EPF is a safer investment option with guaranteed returns, while NPS offers the potential for higher returns but involves higher risks. It is advisable to consult a financial advisor before making any investment decisions.

Can an individual contribute to both EPF and NPS simultaneously?

Yes, an individual can contribute to both EPF and NPS simultaneously, provided they meet the eligibility criteria for both schemes.

Is it possible to transfer funds from EPF to NPS or vice versa?

No, it is not possible to transfer funds from EPF to NPS or vice versa. Different authorities manage the funds in EPF and NPS, and the withdrawal process is entirely separate for both schemes.

Can I transfer my EPF balance to my EPS account?

No, EPF and EPS are separate schemes, and the balance cannot be transferred between the two accounts.

Can I opt-out of EPF and still enrol in EPS?

No, EPS is an optional scheme for EPF members. If you opt-out of EPF, you will not be eligible for EPS.

Also, read about: Documents required for passport

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.