EPF vs NPS: Which Option Offers Higher Returns on a 25-Year Investment?

In preparing for retirement, it is essential to understand whether the Employees' Provident Fund (EPF) or the National Pension System (NPS) is more advantageous. According to a report by TV9 Gujarati, both schemes are popular for long-term savings, but there are significant differences in their investment methods, returns, risks, and withdrawal rules.

EPF is managed by the Employees' Provident Fund Organisation (EPFO). Under this scheme, an employee contributes 12 per cent of their basic salary and dearness allowance. The employer contributes an equal 12 per cent, although not all of this amount is credited to the EPF account; a portion goes to the Employees' Pension Scheme (EPS). For the financial year 2025-26, the EPF interest rate has been set at 8.25 per cent, though this rate may change in the future.

On the other hand, NPS is a market-linked scheme where investments are made in equity, corporate bonds, and government securities. Investors can determine the investment proportion through 'Active Choice' or select a proportion that changes with age via 'Auto Choice'. Under the multiple scheme framework, some non-government subscribers may have the option of 80 to 100 per cent equity, but higher equity does not guarantee higher returns.

If a 35-year-old employee with a monthly basic salary of ₹50,000 plans to retire at the age of 60, with an annual salary increase of 5 per cent, the calculation of returns after 25 years appears as follows. With 8.25 per cent interest, approximately ₹1.58 crore may accumulate in EPF. In NPS, a fund of ₹1.43 crore can be created at 8 per cent returns, ₹1.87 crore at 10 per cent, and ₹2.46 crore at 12 per cent returns.

There are also differences in withdrawal rules. In EPF, the accumulated balance can be withdrawn at the time of retirement. Non-government NPS subscribers can withdraw 80 per cent of the amount as a lump sum upon retirement, while it is mandatory to purchase an annuity with the remaining minimum 20 per cent to receive a regular pension. It is noteworthy that the 80 per cent withdrawal does not guarantee being tax-free.

For those who seek stable interest and low market risk, EPF is a good option, while those who can tolerate market volatility may choose NPS. For many employees, a balanced use of both schemes is also appropriate. The final decision should be taken based on age, risk appetite, and tax arrangements.