A vital part of everyone's life is financial planning. The EPF, PPF, and NPS (National Pension System) are all well-known plans that spring to mind when considering retirement preparation. Though their eligibility requirements, return structures, and withdrawal policies differ, retirement plans offer a wide range of features, advantages, tax arrangements, return expectations, and future security. With real-world examples, this blog offers a concise summary of the main distinctions between EPF, PPF, and NPS.
EPF: What is it?
The EPFO organisation (EPFO) is in charge of the Employees' Provident Fund (EPF), which is intended for salaried workers who work for businesses that are registered under the EPFO Act to save for retirement.
EPF features:
- Contribution: The employer and employee are jointly responsible for contributing 12% of the employee's basic salary, which includes dearness allowance (DA).
- Interest: The declaration of interest occurs every year.
- Maturity: Upon retirement, EPF matures, but partial withdrawal is allowed in certain circumstances, such as residence, education, or illness.
- Tax Benefits: EPF is exempt from income tax under Section 80C of the Income Tax Act.
Example:
Ravi, a software engineer who is 30 years old and earns a basic salary of 50,000 per month, contributes 6,000 to his employer's EPF account, and they match it. Over the course of 30 years, his EPF corpus will grow to approximately 1.1 crore, with an average annual return of 8%, with interest and employer contributions taken into account.
What is PPF's meaning?
PPF is a long-term savings scheme that is backed by the Government of India and accessible to all Indian residents, including self-employed individuals, students, and housewives.
The primary features of PPF:
- Contribution: The amount can be between 500 and 1.5 lakhs per year.
- Interest: The government sets the interest rate quarterly. During 2025, it was 7.1% per year (compounded annually).
- Withdrawal: After 5 years, partial withdrawal is permissible, and full withdrawal is permissible after 15 years.
- Tax benefits: Section 80C provides a deduction for EEE category contributions.
Example:
Meena, a small business owner, has been depositing 1.5 lakh every year into her PPF account for 15 years. By the end of her tenure, she could have accumulated over 40 lakh with a steady 7.1% return. Employer contributions are not given to her, but all interest earned is tax-free.
What is NPS?
The National Pension System (NPS) is a voluntary pension scheme open to all Indian citizens. Regulation is entrusted to the Pension Fund Regulatory and Development Authority (PFRDA), which is connected to the market.
- Eligibility: Indian nationals who are between 18 and 70 years old.
- Contribution: There is no set amount. However, there is a minimum contribution of 1,000 per year.
- Interest rate: Returns are market-linked (approximately 9%-12% over the long term).
- Lock-in period: Until you reach the retirement age of 60. Conditions must be met before exiting early.
- Withdrawal: After retirement, 60% can be withdrawn tax-free, and 40% must be used to purchase an annuity.
Example:
Ajay, a private consultant, makes a monthly investment of 6,000 in NPS. His choice is to possess a portfolio of assets consisting of 60% equity, 30% debt, and 10% government securities. By the age of 60, he has the potential to create a corpus of approximately 70 lakhs, with an average return of 9%. An annuity will produce a pension of 28, and the remaining 42 lakh can be taken out as a lump sum.
EPF vs PPF vs NPS
Eligibility:
EPF is only for salaried employees. PPF is open to all Indian residents. NPS is available to all Indian citizens.
Investment Type:
EPF involves mandatory salary deductions. PPF is a voluntary savings scheme. NPS is a voluntary pension contribution plan.
Returns:
EPF gives fixed returns declared by EPFO. PPF also offers fixed returns decided by the government. NPS returns are market-linked.
Maturity:
EPF matures at retirement or job change. PPF has a lock-in of 15 years. NPS matures at 60 years, with partial withdrawal allowed.
Tax Benefits:
EPF and PPF fall under EEE (Exempt-Exempt-Exempt). NPS follows EET, where part of the annuity is taxable.
Withdrawal Flexibility:
EPF allows partial withdrawal under certain conditions. PPF allows limited withdrawal after 6 years. NPS permits partial withdrawal after 3 years for specific reasons.
Case Comparison
Case 1: Salaried Professional
Priya is employed by a private company. EPF contributions are deducted by her employer on a monthly basis. She also puts ₹1 lakh in PPF and ₹50,000 in NPS to get full tax savings. This way, she uses all three schemes.
Case 2: Self-Employed Individual
Anil runs his own small business. He is not eligible for EPF, but he started contributing 1.5 lakh annually by opening a PPF account. Eventually, he added NPS to his portfolio to get more tax benefits and pension income.
Case 3: A young investor who is willing to take on a lot of risks.
Rohan, who is 25, is more interested in higher returns and can handle market risks. NPS is chosen by him with a 75% equity allocation. This could provide higher returns than EPF or PPF in the future.
Final Thoughts
The financial journey of every individual is unique. Learning about the process of EPF, PPF, and NPS can help you choose a retirement plan that suits your savings pattern, risk preferences, and long-term requirements. These tools have something distinctive to offer for anyone, whether they're a salaried professional, a self-employed individual, or someone who plans ahead.
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