NPS vs EPF vs PPF: Sometimes we miss the investment opportunity and years later realise the mistake. The opportunity missed can be because of a lack of knowledge, a shortage of finances, or responsibilities to meet. When we realise the delay, we may feel discouraged, thinking there is no point in starting late. Likewise, if you are 40 years old and think that after missing so many years, it is impossible to create a sizeable corpus. Think again! Not only may you create a retirement corpus that may help you meet many of your financial goals, but it may also be completely tax-free.

If you start investing in popular retirement schemes such as National Pension Scheme (NPS), Employees’ Provident Fund (EPF), and Public Provident Fund (PPF), you may create a tax-free corpus in the Rs 67 lakh-Rs 1.25 crore corpus range. Know how it may be possible- 

Employees’ Provident Fund (EPF)

EPF is a mandatory retirement scheme for private sector employees who work in EPFO member organisations.

The employer and employee both contribute to the employee’s EPF corpus.

The minimum contribution is Rs 1,800, while the maximum is 12 per cent of the employee’s basic pay and dearness allowance (DA).

The account holder can withdraw the corpus at 58 years of age or earlier in certain conditions. EPFO provides an 8.25 per cent fixed interest rate. 

National Pension System (NPS)

NPS is a market-linked scheme where people from all walks of life can contribute.

As far as government sector employees are concerned, both the employee and the employer contribute to the employee’s NPS corpus.

Among private sector employees, the employer contribution is optional.

An NPS account holder can choose equity and debt investment options for their NPS account.

At 60 years of age, they can withdraw a maximum of 60 per cent of their Tier I NPS corpus.

From the remaining corpus, they need to purchase an annuity plan for a monthly pension.

PPF

PPF is a voluntary contributory scheme where an individual can open an account in a post office or a bank.

Both provide a 7.1 per cent interest rate each.

The minimum investment is Rs 500, while the maximum is Rs 1.50 lakh in a financial year.

The maturity period for the account is 15 years, after which the account holder can continue their PPF account with or without contribution. 

Calculations

We will take the example of a 40-year-old person with a 20-year investment horizon. We will calculate the estimated corpus they may create in NPS, EPF, and PPF at Rs 12,500 monthly (Rs 1.5 lakh in a financial year).

For NPS, we will take the active scheme with 75 per cent allocation in equity and 25 per cent in debt.

The estimated NPS return will be 12 per cent, while the interest rate for EPF and PPF will be 8.25 per cent and 7.1 per cent, respectively. 

The corpus created in all 3 schemes will be tax-free. 

NPS corpus in 20 years

The total investment in 20 years will be Rs 30 lakh. At a 12 per cent estimated return, the estimated corpus will be Rs 1,24,89,349. 

EPF corpus in 20 years

The estimated retirement corpus in 20 years will be Rs 76,38,992.9.

PPF corpus in 20 years

The estimated PPF maturity amount in 20 years will be Rs 66,58,288.17.

Conclusion

It shows that with a consistent investment effort of 20 years, a 40-year-old individual can still gather at least a near-Rs 67 lakh retirement corpus from a Rs 12,500 monthly investment. 

(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)