As individuals embark on their careers, they often begin to think about their retirement plans. To prepare for this future, many choose to invest in various savings schemes. In the country, three popular options stand out, each offering unique advantages: the Public Provident Fund (PPF), the National Pension System (NPS), and the Employees’ Provident Fund (EPF). The best choice for you will depend on your financial objectives and how much risk you’re willing to take. Let’s explore the distinctions among these three savings options.
Public Provident Fund
The Public Provident Fund (PPF) is designed for long-term investment. By participating in this scheme, you can build a financial cushion for your future while also enjoying tax savings. Investors earn interest on their deposits, and the income generated from this interest is tax-free. One of the key benefits of PPF is that your investment is secure, as it is backed by the government.
Income Tax Exemption
Investing in PPF allows you to claim a deduction of up to Rs 1.50 lakh annually under Section 80C of the Income Tax Act. You can start your investment journey with a minimum contribution of just Rs 500.
Employees’ Provident Fund
The Employees’ Provident Fund (EPF) is overseen by the Employees’ Provident Fund Organisation (EPFO). In this scheme, both the employer and employee contribute 12 percent of the basic salary and dearness allowance to the EPF account. For the financial year 2023-24, the EPFO has set the interest rate at 8.25 percent. EPF is mandatory for salaried workers and provides fixed returns, tax benefits, and contributions from employers.
The National Pension System
NPS is a pension plan backed by the government, aimed at providing income after retirement. It has two types of accounts for investing: Tier-1 and Tier-2. The Tier-1 account is the primary retirement account, and you can take out money from it under certain conditions before you retire. You need to have invested for at least three years to make a withdrawal, and you can only take out up to 25% of what you’ve put in. On the other hand, the Tier-2 account doesn’t allow any withdrawals.
Better Options
While PPF and EPF provide stability and guaranteed returns, the National Pension System (NPS) is known for its potential for higher returns thanks to its equity investments. Experts say that NPS has outperformed other investment options, making it a solid choice for building a substantial retirement fund. Its attractiveness has grown even more as the risks associated with equity investments decrease as you approach retirement.
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