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.
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.