NPS Vs PPF Vs EPF — Which One Is Actually Better For Your Retirement?

NPS vs PPF vs EPF — Which One is Actually Better for Your Retirement?

Okay so you just started earning. Or maybe you've been working for a few years now. And somewhere along the way someone — your dad, your CA, a friend at office — told you to "invest for retirement yaar."

And then came the three big names. NPS. PPF. EPF.

Most people just nod and pretend like they understand. But honestly very few people actually know what the difference is. So lets just break it down simply — with a real example — so you can actually make a proper decision for yourself.

Meet Neha — A 27 Year Old Who Finally Decided to Figure This Out

Neha just got her first proper job. Salary of ?40,000 a month. She knows she should be saving for future but every time she tries to understand NPS vs PPF vs EPF she ends up more confused than before.

So one day she just sat down with her CA and asked him to explain it like she had no idea about anything. And honestly that was the smartest thing she did.

Here's what he told her.

EPF — The One Thats Already Running Without You Even Knowing

If Neha is working at a company with more than 20 employees then EPF is already happening in the background. Every month 12% of her basic salary is getting cut and going into her EPF account. And her company is also adding another 12% from their own side.

So without doing anything at all Neha is already putting money away for retirement every single month. The interest rate on EPF right now is around 8.25% per year. And the best part — its totally tax free. The money going in, the interest it earns, the money coming out — all of it tax free.

EPF is honestly the most easy retirement saving you can do. Its automatic, its safe and the returns are pretty good to.

But the one problem is you cant take this money out easily until you retire. There are some options for emergencies but its not very flexible at all.

PPF — The One You Have to Open Yourself

PPF — Public Provident Fund — is something Neha has to go and open on her own. At a bank or post office. She can put in anywhere between ?500 to ?1.5 lakh per year.

Current interest rate is around 7.1% per year. Safe, backed by government and completely tax free — same as EPF.

But here's the thing. PPF has a lock in of 15 years. You just cant take the money out before that. So this is truly money that you put away and forget about for a long time.

The really good thing about PPF is that anyone can open it. Salaried, self employed, student, doesnt matter. Its not connected to your job at all. So if Neha switches companies or starts her own thing someday — her PPF just keeps going on its own.

And whatever she puts in she can also claim as a tax deduction under Section 80C. So its saving her tax right now and also building her future at the same time. Pretty good deal honestly.

NPS — The One Where Returns Are Not Fixed

NPS — National Pension System — is a bit different from the other two. The returns are not fixed here. Part of the money gets invested in the stock market which means returns can go higher but they can also go up and down.

Over the long term NPS has given around 9 to 10% returns per year. Better than PPF and EPF. But again its not guaranteed so you have to be okay with that.

You can start NPS with as little as ?1000 a year. And the tax benefit is really good — you get deduction under 80C and also an extra ?50,000 deduction under Section 80CCD(1B) which is over and above the normal ?1.5 lakh limit. That extra ?50,000 deduction is honestly one of the best things about NPS.

The only thing people dont like about NPS is that when you retire you cant take out all the money at once. Atleast 40% has to be used to buy a monthly pension. Some people are okay with that. Others find it a bit annoying.

So What Did Neha Actually Do?

Her CA told her something really simple. Dont choose one. Use all three.

• EPF is already running. Just leave it alone and let it grow.
• PPF is great for safe and guaranteed savings that you wont touch for 15 years. Start with even ?500 a month.
• NPS is worth doing if you want better returns and that extra tax saving beyond 80C.

So Neha just let her EPF run, opened a PPF account and started putting ?500 a month, and also started ?1000 a month in NPS for the extra tax benefit.

Small amounts. But she started at 27. And by the time shes 60 — compounding would have done most of the work for her. Thats the whole point.

Not sure which one makes more sense for your situation? Just reach out to our team at CA Dhiraj Ostwal & Co — we'll sit down with you and figure out whats best for you.