Retirement Plans in India – NPS, EPF, PPF
Note
Exam Relevance: You will definitely get a question comparing these three. Memorize the Retirement Products Comparison Table below.
Introduction
In India, we don't have a universal social security system. We rely on specific investment avenues to build our retirement corpus. The "Big Three" are EPF (for salaried), PPF (for everyone), and NPS (for everyone).
1. Employee Provident Fund (EPF)
- For Whom: Salaried Employees (Mandatory if salary < ₹15,000, optional for others).
- Structure:
- Employee contributes 12% of Basic Salary.
- Employer matches 12% (Of which 8.33% goes to EPS - Pension Scheme).
- Returns: Fixed by Govt (currently ~8.15%).
- Tax: Exempt-Exempt-Exempt (EEE). Interest tax-free up to ₹2.5L contribution.
- Withdrawal: Only at Retirement (58) or Job loss (Partial allowed).
2. Public Provident Fund (PPF)
- For Whom: Any Indian Citizen (Self-employed, minors, etc.).
- Structure: Voluntary. Min: ₹500/year, Max: ₹1.5 Lakhs/year.
- Lock-in: 15 Years (Extendable in blocks of 5 years).
- Returns: Fixed by Govt quarterly (currently ~7.1%).
- Safety: Sovereign Guarantee (Safest investment in India).
- Tax: EEE Status (Investment Deductible, Interest Tax-Free, Maturity Tax-Free).
3. National Pension System (NPS) - The "Game Changer"
- For Whom: Everyone (18-60 years).
- Structure: Defined Contribution. Market-linked returns.
- Two Tiers:
- Tier I (Pension): Locked till age 60. Mandatory for pension.
- Tier II (Investment): Voluntary, withdrawable anytime (like Mutual Fund).
- Asset Classes:
- E (Equity): High Risk, High Reward (Max 75%).
- C (Corporate Bonds): Medium Risk.
- G (Govt Securities): Low Risk.
- Tax Benefit: Sec 80CCD(1B) gives extra ₹50,000 deduction over and above the ₹1.5L limit of 80C.
Comparative Analysis (Exam Favourite)
| Feature | EPF | PPF | NPS |
|---|---|---|---|
| Eligibility | Salaried Only | Anyone | Anyone |
| Returns | Fixed (~8.15%) | Fixed (~7.1%) | Market Linked (8-12%) |
| Risk | Low | Lowest (Govt) | Moderate to High |
| Lock-in | Till Retirement | 15 Years | Till Age 60 |
| Equity Exposure | No | No | Yes (Up to 75%) |
| Tax on Maturity | Tax Free | Tax Free | 60% Tax Free, 40% for Annuity |
4. Which one to choose?
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Summary
- EPF: Best debt product for salaried class. High interest.
- PPF: Best for long-term safety (Children's education/marriage).
- NPS: Best for "Wealth Creation" due to Equity component, but has low liquidity.
Quiz Time! 🎯
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