Retirement Planning: It is very important to financially secure life after retirement. For this, the Employees Provident Fund and National Pension Scheme are the most popular schemes. But, they also have their advantages and disadvantages. It is also important to consider all approaches before choosing any of these options.
New Delhi. After retirement, options like mutual funds, stocks, fixed deposits, real estate, national pension schemes and employee provident funds are available to keep your future financially secure. Through these investments, post-retirement life can be spent. EPF and NPS are considered the best options among them. Experts say that both these options have their advantages and disadvantages, for example, you have the option to invest in equity, corporate debt or government bonds through NPS. Whereas, the amount invested in EPF goes into debt in a predetermined manner. Thus, NPS has the highest exposure to equity. There are chances of getting better returns by investing in it.
Employees Provident Fund (EPF)
Under the Employees Provident Fund, employees are required to deposit at least 12 percent of their salary from their salary. The employer also puts the same amount in the employee’s EPS. However, employees can invest more than 12 per cent in their EPF contribution. This contribution is made to the retirement fund of the employee. After the age of 58, the entire amount of EPF Fund can be withdrawn. However, there is a provision to withdraw partial amount for medical expenses, house building, education etc. There is also a benefit of tax exemption on EPF. It comes in the EEE category.
National Pension Scheme (NPS)
It is compulsory to invest in National Pension Scheme. An investor has to open an account in NPS by himself. Under this, at least 500 rupees can be invested in Tier-1 accounts and up to Rs 1,000 in Tier-2 accounts. There is no fixed limit for investment in NPS account.
One drawback of NPS is that after withdrawing the entire amount at the age of 60 years, 40% of it has to be put in annuity plan. Subsequently, the subscriber can use the remaining 60 per cent. Apart from this, partial withdrawal is allowed only after 10 years of starting the subscription. This amount also will not be more than 25 percent of the total deposit amount.
Talking about the tax exemption on NPS, it gets the benefit of tax exemption under Section 80C of the Income Tax Act. Apart from this, under Section 80CCD 1B of Income Tax Act, tax exemption of Rs 50,000 will also be available. Employees can claim under section 80CCD 2. This claim will be equal to 10% of basic salary and dearness allowance.
what is the worry about pension and retirement conclusion?
Both NPS and EPF have their advantages and disadvantages. Experts suggest that investing in both schemes with a fixed amount can prove beneficial. Especially for those who are planning for retirement. By choosing the combination of these two options, not only will they benefit on their returns, but both will also get the benefit of a total tax exemption of Rs 2 lakh. Experts also say that investing in the right option also means that you are not able to reap the potential returns. Also, relying on only one option will be less beneficial for life after retirement. In such a situation, it would be appropriate to consider these investment options before taking any decision.
