This may be difficult to pick one investing strategy to enjoy a peaceful retirement life. Investing in the right tool at the right time will give you a potential return for your investment. Therefore, it is essential to make a better or ideal choice of investment instruments for investments. Individuals invest in different instruments such as mutual funds, bank deposits, real estate along with EPF and NPS. EPF and NPS both possess their own advantages and disadvantages.
For instance, in the case of the Employees' Provident Fund (EPF), the investments mainly go into debt instruments, while the National Pension System (NPS) delivers its investors with 3 investment strategies - equity, corporate debt, and government bonds. So let's know how NPS and EPF are different from each other.
Employees Provident Fund (EPF)
An employee needs to make a minimum contribution of 12 per cent of his/her salary every month in the case of EPF. The employer further aligns the contribution along with the employee and contributes up to 12 per cent of the employee 's basic incomes to EPF. An individual will earn a fixed level of interest for contributions made towards the EPFO. The accumulated interest earned on the EPF is completely tax-free, along with accumulation on withdrawal for investments made up to Rs 1.50 lakh under Section 80C.
Investing in EPF is not compulsory for employees earning more than Rs 15,000 per month, but those earning less than Rs 15,000 are mandated to make contributions. Once the investor reaches 58 years of age he/she can withdraw the full corpus from the fund. However, partial withdrawal is also allowed up to a particular limit in case of emergency financial needs.
National Pension System (NPS)
In contrast to EPF, NPS is completely a voluntary contribution system. Under the National Pension System the minimum contribution is set at Rs 500 in Tier I and Rs 1000 in Tier-II accounts. Apart from this one of the best part of this scheme is there is no upper limit on investment. Under NPS a subscriber can withdraw a lump sum of up to 60 per cent from their corpus after reaching the age of 60. But one of the major disadvantages is that after withdrawal, investing in an annuity scheme is mandatory for the rest of the 40 per cent balance.
Up to 25 per cent of the subscriber's NPS savings is allowed for partial withdrawal after completion of 10 years of contribution. NPS holders are allowed to get full tax-exemption up to the limit of Rs 1.5 lakh under Section 80C with tax-exemption of up to Rs 50,000 under Section 80CCD (1B). Under NPS, employees are also allowed to claim deduction up to 10 per cent of the basic salary plus dearness allowances under Section 80CCD (2),
Both NPS and EPF come along with their own upsides and downsides. Researchers thus recommend that retirement plans must opt for a blend of both funds to reap not only from NPS returns over EPF, but also from the zero risk of EPF and tax benefits of Rs.2 lakh.