EPF or NPS- Which is
more better?
Features of EPF and NPS
EPF,
which came into existence in 1952 is a mandatory retirement savings product for
employees of notified firms, including government employees, which employ a
minimum of 10 employees. NPS, on the other hand, is a relatively new scheme
which was notified in 2004 and is currently a voluntary scheme. It is offered
to people who have joined workforce after 2004 and is mandatory for government
employees.
Administration of Schemes:
Under
the EPF scheme, the employee contributes 12% of basic and dearness allowance
every month. The employer makes a matching contribution. The employee’s
contribution is eligible for income tax deduction up to Rs. 1,50,000 a year.
Under the NPS, which is a voluntary scheme, one has to make a minimum
contribution of R. 6000 every year and there is no cap on investment and here
too employers also contribute to the fund. But under NPS, the employer’s
contribution is also eligible for tax deduction.
Basic difference between EPF and
NPS:
While
EPF is a defined benefit scheme wherein returns are defined and tax exempt, NPS
is a defined contribution scheme and the returns are not defined. This is
largely because the EPF corpus, managed majorly by the EPFO, is invested in
fixed income products, essentially government bonds. Under NPS, investments are
managed by pension fund manager notified by the regulators and invest also in
equity products.
Which is more transparent?
NPS
is perceived to be more transparent scheme because a subscriber gets to know
the value of his investments on a day to day basis. But in case of EPF, the
value of the investment is known only annually, after the labour ministry
announces an annual return for the scheme.
Premature withdrawal:
While
some withdrawals are allowed under EPF, there is no such provision under NPS. A
subscriber has to close an account and need to reopen a new account in case of
withdrawals.
Comments
Post a Comment