NPS vs Provident Fund

The NPS (National Pension Scheme) and the EPF (Employee Provident Funds) or PF (Provident Funds)are retirement schemes most people invest in. Both these plans help you set some money aside for your retirement to lead a fulfilled life. What’s more, both offer returns and both have specific interest rates too.

So, the question is, which of these two plans you should invest in? Well, if you’re wondering the same thing, the best way to arrive at a decision is to compare both these plans are choose a plan that suits your unique financial situation better. And if you’re looking for a one-stop solution, we’ve got you covered with this article.

What is the NPS?

The NPS is a pension system sponsored by the government. Here an individual’s savings are linked to the market, and the funds attract returns based on the fluctuations of the market. This makes them similar to Mutual Funds. The difference? NPS subscribers are also liable for tax deductions according to the Income Tax Act.

What is the EPF?

The EPF is a post-retirement fund supervised by a statutory body of the government. In simple terms, the fund activities are overseen by the government. Here, the employees need to pay a set percentage of their total salary towards the fund, and employers will pay an identical amount of money towards the fund. After the fund matures, the employee can claim the entire corpus along with the interest earned on them.

Now that we know what the NPS and the EPF are all about, let’s jump right to the differences between them, shall we? Here are the differences between the two funds grouped by features.

Differences between the NPS and EPF

• Nature of contribution

The NPS is a monetary retirement investment. This means any employed person, irrespective of the stage of their career can invest in the NPS scheme and benefit from returns.

In contrast, the EPF is a mandatory investment if you earn below Rs. 15,000 per month. However, it is voluntary for all other employees.

• Minimum investment

One must invest a minimum of Rs. 6000 annually to keep the NPS fund active.

However, for an EPF, one must set aside up to 12% of their salary every month towards the investment. 

• Taxability

About 60% of the funds can be withdrawn tax-free from an NPS fund.

Contrastingly, both the principal and the interest are tax-free in an EPF.

• Matured sum

While one can withdraw up to 60% of the funds from NPS when they are 60 years of age, the balance amount needs to be used to buy an annuity.  But EPFs have no such specifications. In fact, employees can withdraw all the funds when they are 58 years old.

• Risks

NPS returns depend on the market. However, since EPFs are government-backed, they are relatively safer investments.

Now that you know all about NPS and EPF, it is time to invest your savings. And if you’re looking for an easy way to apply to these funds, simply use the MoneyFy app from Tata Capital.