For many investors, planning for retirement is among the most crucial aspects of financial well-being. Choosing the right investment vehicle can make a huge difference in ensuring a secure future. In India, three of the highly popular options that often come up in discussions are: Public Provident Fund (PPF), Employees' Provident Fund (EPF) and the National Pension System (NPS).
Each of these schemes is specifically designed to encourage long-term savings, but they differ significantly in terms of structure, returns, tax benefits, and flexibility.
Public Provident Fund (PPF)
Even in the age of financial engineering, PPF account remains one of the most popular investment avenues. It is a long-term small savings scheme of the central government, framed under the PPF Act of 1968. Considered among the safest investment options for retirement as well as tax planning, PPF provides guaranteed tax-exemption on investment, maturity amount and interest earned. At present, the interest rate is 7.1% per annum.
As per the rules, an individual is required to make a minimum deposit of Rs 500 and maximum deposit of Rs 1,50,000 in a financial year. You can open the PPF account through the India Post office or by visiting any public bank, such as State Bank of India, Canara Bank, or Punjab National Bank, as well as some private lenders. A key highlight is that the total of Rs 1.5 lakh annual contribution remains exempted under Section 80C of the IT Act.
Employees Provident Fund (EPF)
Administered by the Employees' Provident Fund Organisation (EPFO) under the EPF Act of 1952, EPF is a retirement savings scheme for the salaried class. Under the scheme, employees contribute 12% of their basic salary and dearness allowance to the EPF account, while employers are required to make a matching contribution, although part of it goes into the pension component.
EPF accounts earn interest declared by the EPFO every year. Currently, the interest rate on EPF deposits is 8.25% per year. Eligibility in this include the mandatory enrolment of salaried individuals having basic pay and DA of up to Rs 15,000. Employees' contributions up to Rs 1.5 lakh annually remain exempted under Section 80C of IT Act.
National Pension Scheme (NPS)
NPS is available for all the citizens of India aged 18 to 70, except for those in the armed forces. Post retirement, account holders get to withdraw a certain percentage of their corpus, while the rest is used as pension.
Among the two types of accounts include:
- Tier-1: Minimum deposit of Rs 500 and has some restrictions over withdrawal. It provides an annual tax exemption of up to Rs 2 lakh under Section 80CCD of the IT Act.
- Tier-2: Minimum deposit of Rs 250 and requires the individual to already have an active Tier-1 NPS account.
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