EPF vs NPS, Which Is Better For You

The Employees Provident Fund Organisation (EPFO) has recently raised the interest rate on Employees Provident Fund (EPF) to 8.65 per cent for the financial year 2018-2019 from 8.55 per cent for the year 2017-2018. In a scenario where interest rates are on a downhill, this kind of guaranteed tax-free return is attractive and will make the salaried class happy, most of whom contribute to EPF on a monthly basis for their retirement.

What is EPF:

The Employees’ Provident Fund Organisation, is an organization tasked to assist the Central Board of Trustees, a statutory body formed by the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 and is under the administrative control of the Ministry of Labour and Employment, Government of India.

EPFO assists the Central Board in administering a compulsory contributory Provident Fund Scheme, a Pension Scheme and an Insurance Scheme for the workforce engaged in the organized sector in India. It is also the nodal agency for implementing Bilateral Social Security Agreements with other countries on a reciprocal basis. The schemes cover Indian workers as well as International workers.

What is NPS:

NPS is voluntary defined-contribution scheme (only for non-government employees) under which an employee has to contribute 10 per cent of the salary plus dearness allowance as mandatory monthly contribution and a matching contribution can be made by the employer. You can open an NPS account on your own also.


  • EPF – 
    • The EPF offers insurance and pension benefits to the subscriber.
    • In the hour of need, such as medical emergencies, financial crunch or any unexpected expenses, premature withdrawal of the EPF is permitted.The withdrawals at maturity or after 5 years are entirely exempt from tax.
    • The EPF is mainly a debt-oriented product and currently earns an interest rate of 8.65% p.a. With easy online access, the investor can view the account balance using the EPF number.
  • NPS –
    • NPS gives the option to an investor to diversify the portfolio between Equity, Government Securities and Fixed Income instruments.
    • An investor can invest up to 75% in equity funds. Equity investments are a great advantage that the NPS offer.
    • While equity investments can be volatile, over the long horizons of a typical NPS investment, they are likely to generate much higher returns than fixed income securities (Like PPF/EPF).

EPF VS NPS: Which is best?

For most of the salaried people, not investing or opting out of EPF is not possible as it is part of salary. If you want to invest in NPS you can open an account on your own through point-of-presence (PoP).

Basis the risk profile, you can decide on the allocation between NPS and EPF.

“If one should invest in EPF or NPS, it differs from client to client based on their age and the years left for retirement. If a client is aged below 40 years and has many years before retirement, a higher exposure to equity in NPS vs EPF makes more sense considering a higher exposure to equity could help accumulate a larger corpus by retirement.

Like all investment decisions, this too should be made depending upon the investors’ financial goals, risk, and time horizon. The NPS is suitable for conservative investors, who are working to build their retirement corpus at a minimum risk level. If you have the luxury of time and aren’t entirely risk averse, you may consider investing in ELSS mutual funds to save tax. Investors who have a larger risk appetite might be better off investing in ELSS for tax benefits and build their retirement corpus with a mix of open-ended equity and debt mutual funds.

Investors would save the same tax in both options, but the ELSS and NPS combination has the potential to earn higher returns and therefore build more wealth in the long run

However, if you are above 40 years, you might want to divide between NPS and EPF. If you are close to retirement then higher allocation to EPF helps given assured returns of EPF,” says Navlakhi of International Money Matters.


Returns from EPF are guaranteed and backed by government. So, there is no question of loss of capital. However, as stated earlier, NPS returns are market-linked and nothing is guaranteed. Therefore, over short-term, NPS may face some loss of capital if equity markets are not doing well but over long-term the chances of equity delivering losses are low. Also, the debt portfolio investment in case of NPS is subject to the interest rate risk and credit risk.

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