Which retirement scheme is best? Here is a comparison to help you choose
The EPFO operates a retirement scheme called Employees' Provident Fund (EPF). However, this is not the only retirement scheme that is available in the market.
The government has always brought in various mechanisms on multiple occasions that encourage citizens to be free and comfortable while making investments. Among many investment tools, one such is investing in retirement funds - this is followed since generations and it is the most common means of investment. The idea behind citizens investing their hard-earned money is to avail future benefits. One of the more popular schemes of the government is run by the Employees' Provident Fund Organisation (EPFO). Subscribers should know that currently, the institution is mulling a new provision that allows premature fund withdrawal.
Sources close to development informed Zee Business that "the Central Board of Trustees (CBT) during its meeting on April 13, 2018, may decide on the new option that allows its subscribers, who are not in a job for continuous two months, to withdraw interest free funds from his account to meet his monthly expenses. The scheme is going to benefit at least five crore subscribers of the EPFO.
While EPF is popular indeed, but this is not the only retirement scheme that is available in the market. With the Indian market on a booming stage, it is always best to compare other schemes before making any investment decision. So, here are a few:
Employee Provident Fund
This is one is the most popular saving schemes for retirement as the amount at maturity and the interest earned are tax-free. The aim is to build a corpus for retirement through regular, monthly contributions made by employees and their employer.
Recent introduction of the Universal Account Number (UAN) has made accessibility of the EPF account easier.
Contributions made towards EPF are tax deductible u/s 80C of the Income Tax Act, 1956. A total of Rs 1,50,000 can be claimed under this section. It has interest rate of 8.55% for FY18, and is mostly considered as long-term investment goals.
Minimum contribution is now set at 12% of Rs 15,000 which is Rs 1,800, thus Rs 1,800 from the employee and Rs 1,800 from the employer.
National Saving Certificate
Anyone looking for a safe investment avenue to save taxes can opt for NSC. We can get these certificates from any branch of postal service.
There is no maximum limit for purchase under this scheme, however, investment made up to Rs 1.5 lakh can earn tax break under section 80C of the IT Act. Also, no TDS is levied on NSC payouts, as it is subscriber’s responsibility to pay the applicable tax on it.
You can stay invested in this scheme for a maturity period of 5 years from the date of purchase, and attract up to 7.6% of interest rate.
Interest earned on NSCs are based on the type of certificate bought, but it is calculated on the yearly basis. Interest can be tax-free except the ones earned in the last year of maturity.
Earlier, there were two types of certificates in NSC namely NSC VIII Issue and NSC IX Issue. However, NSC IX Issue was discontinued in December 2015, therefore, subscription is only available for NSC VIII Issue.
National Pension Scheme
NPS is termed as contribution retirement savings scheme developed to enable the subscribers to make decisions regarding their future through systematic savings during their working life.
According to the existing provision of Clause (12A) of section 10 under Income Tax Act, an employee contributing to the NPS is allowed an exemption in respect of 40% of the total amount payable on closure of the subscriber’s account or when the investor opts out of the scheme.
This means that up to 60% of the maturity collection can be withdrawn as lump sum on maturity at the age of 60. However, in case the subscriber wants to opt out of NPS before the age of 60, he/she will only be able to collect merely 20% of the total payment. Remaining 40% will be used to buy annuity from an insurance company.
Interest rate for this scheme is not fixed as the money is invested into many investment options, but it is known that NPS has supported subscribers to earn 12-14%.
Public Provident Fund
PPF was launched to encourage savings among Indians in general, especially to encourage them to create a retirement corpus. Deposits made under PPF are liable for tax deductions, and also interest earned on them are not taxable.
A PPF account can be opened at any nationalised, authorised, private bank and authorised branches/ post offices. Deposit frequency is every year for a tenure of 15 years. However, account continuance is allowed beyond maturity of 5 years at every renewal, with or without making additional deposits.
One can open a PPF account with Rs 100, and can make annual deposits between Rs 500 and Rs 1.5 lakh per year. If an investor plans to make partial premature withdrawals under PPF, this can be done every year from year 7; withdrawals are subject to conditions. Complete withdrawal of funds can be made only at maturity.
Interest rates on PPF is calculated for a financial year according to the rate announced for the said year i.e. unlike bank FDs the rates are not fixed for the entire tenure of the holding.
Currently, it attracts 7.6% interest rate.
Senior Citizen Savings Scheme
This one is designated for individuals above the age of 60 years. It is a long term saving options and offer unmatched security and features that are usually associated with any government sponsored savings programme.
One can opt for this scheme through certified banks as well as the network post offices spread across India.
Typically, this scheme has up to 5 years maturity period, however, it can be extended up to an additional three years after maturity date. A depositor is allowed to make one deposit in the account, which needs to be a multiple of Rs 1,000 and cannot be extended beyond Rs 1.5 lakh.
Under this scheme, an investor can attract up to 8.30% interest rate.
Thus, it is always advisable to first compare before investing your money into retirement schemes.