SOURCE : NEW18 NEWS
Last Updated:June 09, 2025, 15:44 IST
India offers NPS and VPF as retirement options. NPS suits growth-focused investors; VPF is ideal for safe, stable savings. Choice depends on age, risk, and job type
News18
Amidst increasing inflation and diminishing job security, early retirement planning is no longer a luxury but a necessity. In India, two primary avenues are widely utilised for this purpose: the National Pension System (NPS) and the Voluntary Provident Fund (VPF). While both aim to ensure financial stability post-retirement, they differ considerably in structure, returns, risk, and tax advantages.
An Overview Of The National Pension System (NPS)
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The NPS is a government-regulated, market-linked pension scheme available to all Indian citizens, whether salaried or self-employed. It offers flexibility in fund allocation across asset classes such as equities, corporate bonds, government securities, and alternative instruments.
Depending on market performance, returns typically range between 8% and 12% per annum. Young investors with a long-term horizon may allocate up to 75% to equities via the Active Choice option, potentially boosting growth.
NPS vs VPF – A Comparative Analysis
| Parameter | NPS | VPF |
| Eligibility | Open to all Indian citizens aged 18-70 | Only salaried employees enrolled in EPF |
| Returns | Market-linked (8-12%) | Fixed return (approx. 8-8.5%) |
| Risk | Medium, due to equity exposure | Very low, government-backed |
| Tax Benefits | Rs 1.5 lakh under 80C + Rs 50,000 under 80CCD(1B) | Rs 1.5 lakh under 80C |
| Lock-in Period | Until age 60; partial withdrawal after 3 years | 5 years; relatively easy withdrawals thereafter |
| Liquidity | Restricted; 40% must be used for annuity on maturity | Flexible withdrawals for major expenses |
|
Fund Control |
Choice of fund manager and asset allocation | Managed entirely by the EPFO |
|
Suitable For |
Long-term, growth-focused retirement investors | Risk-averse savers seeking stable returns |
A Closer Look At The Voluntary Provident Fund (VPF)
The VPF is an extension of the Employees’ Provident Fund (EPF), allowing salaried individuals to contribute up to 100% of their basic salary and dearness allowance. Returns, usually between 8% and 8.5%, are fixed annually by the government.
VPF offers complete safety with zero market risk, as it is managed solely by the Employees’ Provident Fund Organisation (EPFO).
Taxation And Withdrawal Flexibility
Both NPS and VPF offer income tax relief, but NPS provides an additional Rs 50,000 exemption under Section 80CCD(1B). With VPF, maintaining continuous contributions for five years ensures that both interest and the maturity amount remain tax-free. Liquidity-wise, VPF allows withdrawals for specific life needs after five years, while NPS funds are largely inaccessible until retirement, with limited partial withdrawals.
Making The Right Choice
For self-employed individuals, the NPS is the only accessible option that combines tax efficiency with retirement planning. Salaried workers, however, may benefit from using both schemes; leveraging NPS for higher long-term returns and VPF for financial security.
Younger individuals might prefer the NPS due to its equity potential, whereas older investors seeking minimal risk may gravitate towards the VPF.
Ultimately, the most suitable scheme depends on one’s financial goals, risk appetite, and career profile.
- First Published:
June 09, 2025, 15:44 IST
