EPF Vs NPS: Best Investment Option To Build Your Retirement Corpus In FY26

Building a sizable retirement corpus needs long-term financial planning. To ensure financial stability after retirement, it’s essential to start investing early. A long-term wealth creation plan is important to support your retirement goals. 

As we have already entered the second quarter of the financial year 2025-26, it could be a suitable time to evaluate your investments to build the retirement corpus. Currently, a wide range of savings instruments are available for investors from all income groups.

Among the most popular choices are two government-backed schemes: the Provident Fund (PF) and the National Pension System (NPS). Each investment scheme comes with its own set of advantages. One offers guaranteed returns, while the other provides an opportunity for market-linked gains. 

Supporting your retirement goal, which is ideal, will depend on factors like your risk appetite and financial goals.

The Provident Fund is a retirement savings scheme for salaried employees in India. An employee contributes 12% of the basic salary and dearness allowance (DA) to the PF account every month. An equal amount is also contributed by the employer. This amount is capped at Rs 15,000 per month, but the employees can voluntarily save more in the EPF scheme.

The Employees Provident Fund Organisation (EPFO), tasked with managing the retirement funds, currently offers an 8.25% interest rate per annum.

The employees can claim tax benefits on EPF contributions up to Rs 1.5 lakh in a financial year as per Section 80C of the Income Tax Act, 1961, under the old tax regime. According to the rules, the interest on employee EPF contributions up to Rs 2.5 lakh in a financial year is tax-free. After five years of continuous service, the PF maturity corpus also turns entirely tax free.

The EPF could be a suitable choice for a retirement corpus for those looking forward to a secure return with tax benefits.

National Pension System (NPS) is a government-backed retirement plan open to all citizens of India aged 18 to 70. Under this scheme, the contribution is invested in tools such as equity, debt and government securities. The investors can enjoy tax benefits up to Rs 2 lakh in a financial year on their NPS contributions under Section 80C and Section 80CCD(1B) of the I-T Act.

There is no upper limit on NPS contributions in a financial year and an investor needs to deposit a minimum of Rs 500.

Unlike PF, returns in NPS are not guaranteed as this scheme is linked to the performance of the stock market. However, historical trends have shown that the NPS has delivered 8-10% returns annually.

At retirement, the government allows the employees to withdraw 60% of the corpus. The remaining 40% needs to be used to purchase a monthly pension plan.

Both PF and NPS allow for partial withdrawal features, allowing employees to maintain flexibility with their finances.

To conclude, if you are looking forward to building a larger retirement corpus with higher contributions, NPS provides more flexibility compared to EPF. On the taxation part, NPS could also be a better choice than the provident fund scheme.  However, before choosing either of these two schemes, it’s advisable to evaluate your financial needs and risk appetite.