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EPF, PPF or NPS: Which is the best savings scheme for you?
EPF (Employee Provident Fund) and PPF (Public Provident Fund) have been the most talked about investment products/savings schemes in the past decade. The reasons could be many -- tax-free returns, tax deduction for invested amount, fixed returns and so on.
There is another product which has joined this duel and made it a triangular contest.
The entry of NPS or New Pension Scheme has made the 'best savings scheme' contest really interesting.
If you were to choose one of these as a long term investment (at least 15 years), which one would you choose?
What should be the factors for you choose one of these?
This is exactly what we would be looking at now. Here is a comparison of these schemes based on certain important factors.
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1. Employee Provident Fund (EPF)
This has been every employee's darling till now. Employees are always interested in knowing more and more about this scheme.
Be it their EPF balance, withdrawal or transfer, every employee wants to know the ins and outs of this popular retirement scheme.
Important factors:
- Tax deduction available: Up to Rs 1 lakh under section 80C
- Maximum contribution allowed: Up to 100 per cent of (basic + dearness allowance)
- Returns: 8.5 per cent
- Cost: Nil
- Liquidity: Withdrawals allowed for certain instances like marriage, children's education, construction of house/flat and so on
- Tenure: Up to 60 years of age
- Taxation: Taxable as per applicable tax slab if withdrawn before 5 years of service
- Purpose: Retirement corpus, pension and insurance
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2. Public Provident Fund (PPF)
Primarily a post office scheme, PPF has now become a popular financial product which is sold across nationalised banks.
Though not a mandatory scheme for employees, it has gained in popularity due to its tax-free steady returns in the past decade or so.
Important factors:
- Tax deduction available: Up to Rs 1 lakh under section 80C
- Maximum contribution allowed: Up to Rs 1 lakh
- Returns: 8.7 per cent
- Cost: Nil
- Liquidity: Partial withdrawals allowed from 6th year onwards
- Tenure: 15 years, with option to extend for blocks of 5 years any number of times
- Purpose: Retirement corpus, children's marriage/education
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3. New Pension Scheme (NPS)
Here is a newcomer in the market with a different strategy.
For all those who wanted EPF to have exposure to equities, NPS can now do that for you.
You can also pick your fund manager from the given options.
It is not just restricted to the employees but caters even to the self employed class.
Important factors:
- Tax deduction available: Up to 10 per cent of (basic + dearness allowance) under Section 80CCD within the Rs 1 lakh limit. Employer's contribution up to 10 per cent of (basic + dearness allowance) under Section 80CCE.
- Maximum contribution allowed: NA
- Returns: 6 to 12 per cent depending on type of scheme
- Cost: Fixed cost of Rs 470 per year
- Liquidity: Withdrawals available for Tier-II funds
- Tenure: Up to 60 years of age
- Purpose: Retirement corpus, pension
Conclusion
In terms of tax benefits and liquidity, PPF seems to be better than the rest.
However, EPF offers you the benefit of employer's contribution up to 12 per cent of your basic, which actually doubles the saving.
If you are keen on having equity exposure to your retirement kitty, NPS seems to be the only option here.
NPS returns have not been impressive yet, but being a long term product, equity exposure should boost the returns later.
All the three products have proved to be quite good and there is no harm in holding all of these depending upon your need.