Understanding Retirement Corpus Building

As awareness grows about the importance of preparing for retirement during one's working years, it's crucial to explore the various long-term savings schemes available. This guide delves into the tax benefits, liquidity, and returns offered by EPF, PPF, and NPS, helping you make informed decisions for a secure future.

Employees’ Provident Fund Scheme (EPF including VPF)

What is it? EPF is a savings scheme for salaried individuals, excluding government employees, where both the employee and employer contribute 12% of the monthly salary. Voluntary Provident Fund (VPF) allows contributions up to 100% of the salary.

Investment limits: Mandatory for salaries up to 15,000, optional for higher incomes based on employment terms.

Liquidity: Allows partial and full withdrawals under specific conditions.

Returns: Risk-free with an 8.25% interest rate for FY 2023-24.

Tax benefits: Contributions are tax-deductible under Section 80C, with certain conditions and limits.

National Pension System (NPS)

What is it? A voluntary retirement savings scheme for both salaried and non-salaried individuals, with mandatory participation for government employees.

Choice of investments: Offers flexibility with a minimum annual investment of 1,000 in a Tier-I account and various fund options.

Liquidity: Tier-I accounts have a lock-in period till retirement or 60 years, with partial withdrawal options.

Returns: Market-linked returns, not guaranteed.

Tax benefits: Available under Sections 80C and 80CCD, with specific conditions.

Public Provident Fund (PPF)

What is it? A voluntary long-term savings scheme for both salaried and non-salaried individuals, offering tax benefits and government-backed security.

Investment: Between 500 and 1.5 lakh per annum, in lump sum or instalments.

Liquidity: Partial withdrawals after six years, full withdrawal after 15 years.

Returns: Considered low-risk with a 7.1% interest rate.

Tax benefits: Contributions are tax-deductible under Section 80C, with tax-free withdrawals and interest.