Skip to main content

Investing in EPF is better than Investing in NPS

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

Bangalore- based Dirk Lewis, 30, who works for a leading information technology services company, plans to subscribe to the National Pension System ( NPS) from the next financial year ( 2014- 15). His company offers the NPS option to its employees, over and above the mandatory Employees' Provident Fund ( EPF) provision.

"NPS would help me save more on the tax front. Also, knowing myself, I would save only when I am forced to. This way ( through NPS), I would be able to build a neat corpus for my retired life. I have some expenses this year, which wouldn't allow me to contribute towards NPS," says Lewis.

A host of companies, including Infosys, Wipro, Reliance Industries, Muthoot Finance, Colgate- Palmolive, Capgemini and Pantaloons, offer the NPS option.

Samir Gadgil, general manager and global head ( compensation and benefits), Wipro, says the company has been seeing good traction from employees interested in NPS, over and above EPF. "On an average, annual contribution stood at ₹ 4- 6 crore. And, the number of employees subscribing to the scheme is growing on an annual basis," he says.

Wipro recommends NPS for product diversification, as well as a substitute for voluntary contribution towards EPF, Gadgil says.

Some companies say primarily, those in the 30- 35 age bracket are subscribing to NPS, as they are aware the product's equity component could deliver good returns through 30 years.

George Alexander Muthoot, managing director of Muthoot Finance, feels NPS would help his employees build a decent retirement fund.

A company can either offer investment options at the subscriber level, allowing employees to choose the pension fund manager and the asset allocation (active choice), or at the company level, in which case the company decides the fund manager and the asset allocation ( auto choice). Under the latter, the company may opt for the portfolio mandated for central government employees and choose from the three government fund managers —LIC Pension Fund, SBI Pension Fund and UTI Retirement Solution — or from schemes and fund managers for the voluntary sector.

All one has to do is subscribe to NPS and ask his/ her employer to deduct a fixed amount every month or year. Many companies also contribute towards their employees' NPS and get tax benefits under Section 80CCE by terming this business expenditure in their profit- and- loss accounts. Even the employer's contribution of up to 10 per cent of basic and dearness allowance is eligible for deduction, though such employers later deduct their contribution from the employee's salary. Most companies ask for an annual contribution of at least ₹ 6,000 (once a year), or at least ₹ 500 a month. Many companies have spread awareness on NPS among employees through web seminars, group discussions and helpdesks at their campuses.

Financial planners, however, aren't too enthused by NPS ( compared to EPF), though comparing the two isn't fair--- while EPF is purely a debt product, NPS also invests in equity. EPF is meant for those who do not understand investment very well--they simply put away money in EPF and earn handsome returns. NPS, however, is meant for those who have a fair knowledge on investment and can choose funds. NPS is a product that should figure in the list you consider for investing for your retirement, whether you put money into it or not

Simply put, EPF is slightly market driven to the extent of investing in government securities, while NPS is about 50 per cent market- driven, due to the equity component. As a result, returns are safe in EPF, not in NPS. There is a small cost attached to investing in NPS, but there is no cost in investing in EPF.

Also, NPS has withdrawal limits;

 EPF does not--- it offers premature withdrawal for specific purposes (house construction, marriage and illness), without foreclosure. Any premature withdrawal leads to account closure in the case of NPS. Up to 20 per cent of the funds can be withdrawn from NPS before one turns 60; the rest has to be used to buy annuity. Also, you can easily stop contributing towards EPF in desperate times; you can't do so with NPS.

One NPS fund manager I met recently told me they don't make money on NPS asset management; they hardly rejig the portfolio on the back of market conditions. If fund managers aren't paid adequately, returns may soon start declining. The expert, therefore, feels the government should look at developing the product to make it more investor- friendly.

Also, NPS returns aren't very attractive.

The Employees' Provident Fund Organisation ( EPFO) gives 8.5 per cent returns to subscribers. Till August 2012, returns offered by NPS stood at 6- 11 per cent ( an average of 8.5 per cent). Though NPS should give better returns (compared to EPF) due to the equity component, this hasn't been the case. Therefore, it hasn't appealed to investors or financial advisors. Vaid says many company trusts that manage EPF money on their own have delivered higher returns — 9- 9.5 per cent. Therefore, it might not be sensible to consider NPS.

Like Lewis, most look at NPS from a tax- saving perspective. Even then, the product doesn't seem lucrative. An any use, as long as you are an indisciplined investor and need to be forced into investing. A withdrawal from NPS is taxable at the slab rate and so is the annuity to be earned after retirement.

Therefore, sticking to EPF or Public Provident Fund (PPF), which offer annual returns of 8.7 per cent, and taking the equityoriented balanced fund route to add equity to the retirement portfolio. According to mutual fund rating agency Value Research, equity- oriented balanced funds returned about seven per cent in the past year.

Financial experts feel for self employed individuals, too, PPF scores over NPS, as investments of up to ₹ 1 lakh in PPF are completely tax- exempt.

While Gadgil says an employee can continue using his NPS account even after quitting an organisation, An employee would be disciplined enough to continue investing on his own, as the organisation he joins next may not offer NPS.

Servicing is better when a product is offered by an organisation. This might not be true for independent NPS accountholders. NPS' product structure might not be easy to understand for most. A combination of EPF/ PPF, debt funds and index funds. In the past year, the BSE Sensex returned about nine per cent, while the National Stock Exchange's Nifty gave eight per cent returns. From a tax point of view, too, equity is very efficient--- if held for more than a year, returns from equity investment are tax- free in the hands of investors. Across categories, debt funds have returned 9- 11 per cent higher than NPS. Also, if held for more than a year, debt funds get indexation benefits.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...
Read more

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...
Read more

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...
Read more

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...
Read more

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now