EPF and NPS: Balancing stability with market exposure

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₹15,000 monthly must contribute to EPF. However, employers can voluntarily contribute even if these conditions are not met. Both the employer and employee contribute 12% of the basic salary plus dearness allowance to EPF, with the employer's contribution at 3.67% for the PF and 8.33% for the pension account.

Additionally, employers contribute 0.50% to the Employee’s Deposit Linked Insurance Scheme (EDLI) and 0.50% towards administrative charges. For salaries above ₹15,000, the employer’s pension contribution is capped at 8.33% of ₹15,000, with the excess going into the PF account. NPS is a voluntary retirement savings scheme administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

Unlike with EPS, any Indian citizen, employee or self-employed, can join NPS individually or through an employer. NPS allows for flexible investments in equity, government bonds and corporate debentures, and subscribers can also choose their pension fund managers (PFMs). It offers two types of accounts – Tier I (mandatory retirement) and Tier II (voluntary savings).

Tier II provides greater flexibility on withdrawals. Tier I accounts have no upper limit for investments, but at least ₹1,000 must be invested annually. Subscribers can switch between investment options and fund managers, choosing between active and auto investment compositions.

EPF has historically yielded an average annual return of 8% to 8.5%. NPS offers varying returns depending on what the subscriber invests in. Typically, equity investments yield between 15% and 17%, while government bonds and corporate debentures generate 7% to 9% returns.