NPS Vs PPF Vs EPF: Which is the best retirement option: ANI Decodes

New Delhi [India], May 13 : To experience the magic of compounding, one must start investing at a younger age; the sooner, the better.
Experts say you must start investing for retirement in early 20's. The most popular investment Indians made are PPF and EPF, later is mandatory for employees working in an organisation on pay rolls.
Investment in both these plans also saves on tax, in PPF an investment up to Rs 1.5 lakhs per annum is tax exempt, whereas in EPF investment of up to Rs 2.5 lakhs per annum attracts tax benefit.
NPS or National Pension System was launched for general public in 2009, for government employees it was opened under defined pension plan in 2004 only. In this report, we will analyse returns on EPF, PPF and NPS over last 15 years and advice which is the best investment options for retirement planning.
If we calculate the returns over 15 years on EPF, PPF and NPS, it is clearly seen that NPS is the winner.
PPF and NPS are voluntary for public but EPF is mandatory for employees under the law.
Unlike EPF and PPF, NPS offers an additional tax deduction of Rs 50,000. EPF and PPF invest the funds in debt instruments and returns are fixed and announced for specific durations.
Currently PPF offers a return of 7.1 per cent while EPF is giving a return on 8.15 percent for 2023-24.
NPS on the other hand have an equity component and returns are not fixed. Subscribers have the option of choosing equity component as per their risk appetite.
NPS Tier 1 allows 25 per cent, 50 per cent and 75 per cent equity allocation options to its subscribers.
Over the last 15 years, even the worst-performing NPS fund with the most conservative allocation of 25 per cent equity exposure have beaten PPF and EPF by returns of 16.3 per cent and 11.9 per cent, respectively
Consider an investment of Rs 10,000 per month over last 15 years starting May 2009 till May 2024 in all three instruments. The maturity amount for PPF has come out as Rs 33.8 lakh, for EPF it is Rs 35.1 lakh but in NPS Tier 1 plan, even for the worst performing plan with 25 per cent equity exposure maturity amount has come out at above Rs 39 lakhs.
For NPS Tier 1 plan with 50 per cent equity exposure by different fund houses, the maturity amount has come out between Rs 43 lakhs and Rs 47 lakhs. NPS Tier 1 plan with 75 per cent equity exposure has even more maturity amount of between Rs 48 lakhs to over Rs 52 lakhs.
Clearly NPS outperforms over PPF and EPF because of its equity exposure.
But there is downside to NPS as well, it includes mandatory investment in annuity on maturity. NPS withdrawal mandates 40 percent of the corpus to be used to buy an annuity plan for regular income during retirement.
The remaining 60 per cent can be withdrawn in lump sum upon retirement, whereas in case of EPF and PPF whole amount can be withdrawn and it will be tax free.
But, even with taxes and annuity NPS is clearly a winner when it comes to retirement.
ANI cautions investors that equity returns are not fixed and depends on market performance, but historically it is seen that over a longer period of time returns on equity outperforms other fixed investment plans.