EPF vs NPS in 2018

A few days ago, government finally notified 8.55% interest rate on EPF for the year 2017-18. This makes it the lowest in 5 years. Now this is a bad news for salaried employees as EPF contribution is mandatory for most salaried employees. And yet again I see chatter comparing EPS and NPS among my circle.

Smart investors don’t like EPF option because of low equity exposure. NPS can instead deliver higher returns than that of EPF in long terms.

The benefit of going with EPF though is that it offers better liquidity options. EPF withdrawals made after 5 years of continuous employment are totally tax free.

With NPS, you can withdraw up to 25% of your accumulated NPS corpus within 3 years of subscription. However, this is available only for limited reasons – realestate purchase, construction of house, child’s marriage, education, setting up new business, or serious illness.

Only 40% of NPS maturity amount is tax free. You can withdraw 60% of NPS maturity amount after retirement but the rest has to be used for buying annuities.

In my future post, I will discuss why NPS is bad investment to go even though it has tax benefits.

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