EPF vs NPS

Investment of contributions:

1. Two investment modes available: Active choice mode and Auto investment mode.
2. Active choice mode investors get up to 50% exposure to equity, with the remaining being invested in medium or low return fixed income instruments.
3. Auto choice mode calculates asset allocation based on the age of the contributor.
4. NPS contributions from government employees in the Tier 1 account has only 15% exposure to equity.

Investment of contributions:

1. EPF contributions are invested in Central and State Government Securities.
2. Investments are also made in bonds and deposits of PSUs.
3. Pension of the contributor is independent of market conditions.
4. Compounding annual interest on EPF deposits will be paid to contributors even in the case of flexible returns for bonds and securities.

Rate of returns:

1. NPS returns vary based on the market conditions for stocks and bonds.
2. NPS returns also vary depending on the ratio of investment options and exposure to equity, medium fixed income securities and low fixed income securities.
3. Average returns for NPS investment of 85% in fixed income securities, and 15% in equities is:

2012 – 2013: 9.76%

2013 – 2014: 5.37%

2014 – December 2015: 19.63%

From the launch of the NPS scheme: 10.35%

Rate of returns:

1. The average EPF rate of returns is between 8.00% - 8.50% p.a.

Liquidity and withdrawals:

1. Funds cannot be withdrawn until the contributor attains the age of 60.
2. Partial withdrawal is allowed in case the contributor invests 80% of the NPS wealth in an annuity scheme.
3. Withdrawals made after the age of 60 require 40% to be invested in annuity.

Liquidity and withdrawals:

1. Withdrawals allowed under certain circumstances.
2. Up to 6 times the member’s salary can be withdrawn for medical treatment.
3. Up to 36 times the member’s salary can be withdrawn for repayment of a house loan.
4. Up to 24 times the member’s salary can be withdrawn for purchase of a site or plot of land.
5. Up to 12 times the member’s salary can be withdrawn to repair and remodel his / her home.
6. Up to 50% of the contributions made can be withdrawn up to 3 times for marriage or education.

Income Tax benefits and deductions:

1. All funds except those invested in annuities are taxable at prevailing rates.
2. Contributions of up to Rs.2,00,000 are deductible from taxation under Section 80C and Section 80CCD(1B).
3. Other investments and savings like LIC Premiums, ELSS, post office savings etc. will have to share the Rs.1,50,000 provision under Section 80C and Section 80CCD(1).
4. Hence, there is only an effective amount of Rs.50,000 that can be claimed as a separate deduction under Section 80CCD(1B) under NPS.
5. Budget 2015 deductions (of Rs.50,000) as announced basically are only beneficial to NPS Tier 1 investors under Section 80CCD(1B).

Income Tax benefits and deductions:

1. Contributions made are tax-free under Section 80C.
2. Interest earned and withdrawals are not taxed.
3. No additional benefits apart from 80C deductions.