Employee Provident Fund (EPF), Public Provident Fund (PPF), and National Pension System (NPS) are three different investment schemes offered in India for long-term savings and retirement planning.
EPF is a mandatory savings scheme for employees, where both the employee and the employer contribute 12% of the employee’s salary (basic salary + dearness allowance) towards the EPF account. The accumulated corpus can be used for various purposes such as buying a house, medical expenses, or to support the employee during retirement.
PPF, on the other hand, is a voluntary savings scheme offered by the government of India for individual savings. A person can invest a minimum of INR 500 and a maximum of INR 1.5 lakhs per financial year into a PPF account. The funds accumulated in a PPF account are tax-free, and the interest earned on the deposits is also tax-free.
The National Pension System (NPS) is a pension scheme for all citizens of India, including self-employed individuals and employees of the government and private sectors. In NPS, the investor has to make contributions towards the scheme regularly, and upon retirement, the accumulated corpus is used to buy an annuity plan to provide a regular income during old age.
Let’s consider Raj, who is a representative employee earning INR 10 lakhs per year, and see how each of these investment schemes will help him in his financial planning.
EPF: Raj’s employer and he both contribute 12% of his salary towards his EPF account, which amounts to INR 1.2 lakhs (12% of INR 10 lakhs) per year. Over the years, the accumulated corpus in his EPF account will grow, and he can use it for various purposes mentioned above.
PPF: Raj can choose to invest a maximum of INR 1.5 lakhs per year into his PPF account. The interest rate on PPF is determined by the government and is currently 7.1% per annum. Over the years, the accumulated corpus in his PPF account will grow, and he can use it for long-term savings or emergency funds.
NPS: Raj can choose to invest in NPS, which is a pension scheme. The funds accumulated in the NPS account can be used to buy an annuity plan upon retirement, providing him with a regular income during old age. NPS also offers tax benefits, and the contributions made towards the scheme are eligible for tax deductions under Section 80C of the Income Tax Act.
In conclusion, EPF, PPF, and NPS are three different investment schemes offered in India for long-term savings and retirement planning. While EPF is mandatory for employees, PPF and NPS are voluntary schemes for individuals. Each scheme has its advantages and disadvantages, and it is up to the individual to choose the scheme that best suits their financial goals and objectives.
The numbers are for educational purpose only and you must consider your financial advisors for your unique situation and your financial goals.