NPS and EPF Difference
NPS and EPF are considered to be the best retirement saving options in India. However there are few difference in terms of returns, eligibility, premature withdrawal and other features. So here are the difference between NPS and EPF.
- Launch Year: NPS was launched in the April 2009. Whereas EPF was launched in March 1952.
- Eligibility: EPF is only for salaried employees whereas in case of NPS any individual can invest in it. However citizen can start investing in both from 18 years upto the age of 60 years.
- Investment Cost: Investing in EPF doesn't cost anything. But in case of NPS, a small fund management fee is involved which varies for government employees (which is 0.0102%) and those who are employed in the private sector (0.25%).
- Contribution: In EPF, employee's contribution is at least 12% and equal amount is contributed by the employer. So the total investment is 24% from the basic salary of the employee. But in case of national pension scheme, minimum investment should be INR 6000 in a year and there is no limit on maximum contribution. And minimum one contribution should be made in a financial year.
- Lock-In Period: NPS has lock-in period till 60 years but for EPF there is no lock-in period.
- Premature Withdrawal: NPS allows premature withdrawal but only under certain terms and conditions for tier-I & II accounts. Under tier-I, no withdrawals are allowed without foreclosures. In case of death of the account holder, nominee can withdraw all the money at once. When an individual's age is between 60 and 70 years, up to 60% can be withdrawn and remaining 40% should mandatorily used for buying annuity from approved life insurers. Whereas only 20% can be withdrawn and 80% should be used for buying annuity from approved life insurers, if investor wants to withdraw money before he/she reaches the age of 60 years Similarly EPF allows only in case of specific purpose such as children's marriage or education.
- Returns: For the year 2012-2013, NPS offered higher returns (12%-13%) than EPF whereas EPF offered interest rate of 8.75%. However since the interest is variable in case of NPS, experts always consider EPF as a safe avenue even though it assures fixed returns.
- Tax Benefit: Through NPS citizens can claim tax deductions under the section 80C, 80CCF and the newly introduced section 80CCD(2). But it is the duty of the employer to invest in the section 80CCD(2) which benefits employees in additional tax savings. Up to 10% of an employees salary can be invested in NPS which is tax deductible. EPF investments qualifies for deduction under section 80C.
- Where is the money invested: Money collected through EPF is invested in government bonds or securities. Whereas NPS is allowed to invest 50% in equities.
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