Today, there are many powerful schemes available for retirement planning, the most prominent of which are the National Pension System (NPS), the Public Provident Fund (PPF), and the Employees’ Provident Fund (EPF). While these three schemes aim to generate savings, they vary significantly in terms of interest rates, risk, and maturity. Let’s understand in detail which scheme is best for each individual, from those with a salary of ₹75,000 to those who own their own business.
EPF
The Employees’ Provident Fund (EPF) is mandatory for all those working in the private sector. It is a government-guaranteed savings scheme that ensures financial security for every employed person. Under this scheme, a portion of your basic salary (including DA) is deposited into your EPF account every month. Your employer also contributes an equal amount. The government announces the interest rate on this deposit every year, which is currently 8.25%. At the time of retirement, you receive the entire amount deposited in your EPF account in a lump sum. Premature withdrawals are also permitted under certain circumstances.
PPF
If you are self-employed, own your own business, or have a low-risk appetite, the Public Provident Fund (PPF) is best for your retirement planning. This scheme has a tenure of 15 years. This means that if you start investing today, you can withdraw the entire deposit after 15 years. The government fixes the PPF interest rate every quarter, which is currently 7.1%. PPF is tax-efficient because its maturity amount is completely tax-free (EEE category). Withdrawals are also permitted before maturity; you can withdraw some money from the 7th year.
NPS
The National Pension System (NPS) is the newest of these three schemes and is quite different from the others. The biggest difference is that NPS is a market-linked scheme. Your money is invested in stocks, government bonds, and corporate bonds. This gives investors the freedom to invest more or less in any asset class, depending on their preferences and risk appetite. At retirement, 60% of the deposit is disbursed as a lump sum. The remaining 40% is used to purchase an annuity, which provides a monthly pension. This provides an excellent balance between a lump sum and a monthly income.
Which is best for you
Financial experts say that private sector employees can invest in all three schemes, while self-employed individuals can invest in both PPF and NPS. If you want a scheme with higher returns than stocks, NPS is the most effective option because it is linked to the market.
Conversely, for those who are risk-averse and want a large lump sum upon retirement, PPF is the safest option. Based on your risk appetite, financial goals, and income, you can decide how much to invest in each plan. A wise mix of these three plans is the best strategy for retirement planning.