top of page
Search

EPF, PPF, and NPS: Which Retirement Plan Should You Choose?

by KarNivesh | 12 August, 2025


Planning for retirement is like planting a tree — the earlier you start, the better. With rising inflation, longer life expectancy, and evolving lifestyle needs, selecting the right retirement plan has never been more important. In India, three government-backed schemes dominate the retirement landscape: Employee Provident Fund (EPF), Public Provident Fund (PPF), and National Pension System (NPS).


ree

The Current Retirement Landscape in India

In 2025, the EPF interest rate is 8.25%, PPF offers 7.1%, and NPS provides market-linked returns averaging 8–12%. Together, these schemes serve over 13 crore subscribers and form the backbone of the nation’s retirement planning.

Comparison of current annual returns across major Indian retirement schemes in 2025
Comparison of current annual returns across major Indian retirement schemes in 2025

Employee Provident Fund (EPF): The Salaried Employee’s Safety Net

EPF is a mandatory savings plan for salaried employees where both employee and employer contribute 12% of the basic salary each month. The scheme offers:

  • Guaranteed Returns: Fixed annually, currently at 8.25%, higher than most fixed deposits.

  • Dual Contribution: Both parties contribute, effectively doubling savings.

  • Flexible Withdrawals: Partial withdrawals allowed for medical, education, marriage, or home purchase needs.


Withdrawal Rules:

  • Full withdrawal after retirement at 58, or partial during unemployment.

  • Partial limits include up to 90% for housing after 3 years, or 50% of the employee’s contribution for marriage/education after 7 years.


Public Provident Fund (PPF): Universal Retirement Builder

PPF is open to everyone — salaried, self-employed, homemakers, or even retirees.

Key Features:

  • Annual investment range: ₹500–₹1.5 lakh.

  • Current interest rate: 7.1% (tax-free).

  • Lock-in: 15 years, extendable in 5-year blocks.

  • Triple tax exemption (EEE).


Advantages:

  • Flexible contributions (monthly, quarterly, or lump sum).

  • Loan facility between the 3rd and 6th years at just 1% interest.

  • Partial withdrawals from the 7th year for up to 50% of the balance.

Closure Rules: Premature closure is allowed after 5 years for specific reasons with a 1% interest penalty.


National Pension System (NPS): The Market-Linked Growth Engine

NPS invests in a mix of equities, corporate bonds, and government securities, aiming for higher returns.

Core Details:

  • Open to ages 18–70.

  • Two accounts: Tier-I (retirement) and Tier-II (savings).

  • Market-linked returns of 8–12%.

  • Extra tax benefit of ₹50,000 under Section 80CCD(1B).


Strengths:

  • Higher long-term returns (historically 10–12%).

  • Professional fund management by SEBI-registered managers.

  • Very low cost at 0.09% annually.


Withdrawal Rules:

  • At 60: Up to 60% lump sum tax-free, 40% for annuity.

  • Before 60: Only 20% lump sum allowed, rest for annuity.

  • Partial withdrawals (up to 25% of contributions) allowed after 3 years for specific purposes.


EPF vs PPF vs NPS: Strategic Use

For Salaried Employees:

  • EPF is automatic.

  • Add PPF for tax-free stable growth.

  • Add NPS for higher returns and extra tax benefits.


For Self-Employed:

  • PPF as the primary stable vehicle.

  • NPS for growth and additional savings.


Risk-Return Profiles:

  • Conservative: EPF/PPF focus.

  • Moderate: NPS with more debt and some PPF.

  • Aggressive: NPS with higher equity exposure, plus EPF for stability.


Tax Benefits

Under Section 80C (₹1.5 lakh limit): EPF, PPF, and NPS qualify.Under Section 80CCD(1B): Extra ₹50,000 deduction exclusive to NPS.


Maturity Taxation:

  • EPF: Fully tax-free after 5 years.

  • PPF: Fully tax-free.

  • NPS: 60% lump sum tax-free; annuity taxable.


Decision Framework

Step 1: Employment Status

  • Salaried: EPF base, PPF for stability, NPS for growth.

  • Self-employed: PPF base, NPS supplement.


Step 2: Risk Tolerance

  • Low risk: EPF/PPF focus.

  • Balanced: Mix stable and growth schemes.

  • High growth: NPS-heavy allocation.


Step 3: Age & Time Horizon

  • Young: More NPS, moderate EPF/PPF.

  • Mid-career: Balanced mix.

  • Pre-retirement: EPF/PPF focus, conservative NPS.


Common Mistakes to Avoid

  • Avoid ignoring NPS due to complexity.

  • Don’t withdraw EPF when changing jobs — transfer it.

  • Maximize PPF contributions.

  • Review and adjust NPS allocation regularly.


ree

Action Plan

Immediate:

  • Check balances, open missing accounts.

  • Estimate retirement needs with inflation.


Next 3–6 Months:

  • Maximize tax deductions.

  • Set up systematic contributions.


1–5 Years:

  • Review annually, rebalance investments.

  • Build an emergency fund alongside retirement savings.


Future plan

Technology: Increased digital integration and app-based access.

Benefits: Easier EPFO services, faster transfers.

Policies: Ongoing subscriber-friendly updates.


Conclusion

The best retirement strategy is not about picking a single winner but combining EPF for stability, PPF for guaranteed growth, and NPS for market-linked wealth creation. Start early, stay consistent, and review regularly — the financial choices you make today will define your future comfort.



Comments

bottom of page