Many investment options are available, and retirement plans have gained popularity. In the past, retirement planning was primarily accessible to government employees, but various government schemes now cater to ordinary workers’ needs as well.
In India, popular options for building a retirement corpus include the Employees’ Provident Fund (EPF), Public Provident Fund (PPF), and Systematic Investment Plan (SIP).
Each scheme has unique features and offers good returns and tax benefits. Let’s consider which one might be the best retirement plan among the three.
Employees’ Provident Fund (EPF):
The EPF is a retirement savings scheme designed for private-sector employees. It currently offers an interest rate of 8.25% per annum.
Private-sector employees earning a minimum basic salary of Rs. 15,000 are eligible. A minimum monthly contribution of Rs. 1,800, or 12% of the basic salary plus dearness allowance (DA), is required.
Employers also match this contribution. Of the company’s contribution, 3.67% goes to the EPF, while 8.33% is directed towards the Employees’ Pension Scheme (EPS), which provides a monthly pension to the employee upon retirement.
The EPF also offers tax benefits, allowing a tax deduction under Section 80C for investments up to Rs. 1.50 lakh annually. Additionally, there is no tax on the interest earned or the maturity amount.
If you invest Rs. 12,000 every month in the EPF for 30 years, your total investment will amount to Rs. 43.2 lakh, and your estimated retirement corpus will be approximately Rs. 1,84,89,110.
Public Provident Fund (PPF):
The PPF is a government-backed scheme that is available at post offices and banks. It provides safety, fixed returns, and tax benefits.
The PPF offers an interest rate of 7.1% per annum. Investors can contribute a minimum of Rs. 500 and a maximum of Rs. 1.50 lakh annually. The scheme has a lock-in period of 15 years, which can be extended in blocks of 5 years thereafter.
Like the EPF, investments up to Rs. 1.50 lakh per annum qualify for tax deductions. The interest earned and the maturity amount are also tax-free.
If you invest Rs. 12,000 monthly in the PPF for 30 years, your anticipated retirement corpus will be around Rs. 1,48,32,874.
SIP in Mutual Funds:
A Systematic Investment Plan (SIP) allows you to invest regularly in mutual funds—daily, monthly, or annually. SIPs generally yield higher returns than EPF or PPF, but they come with higher risks as they are linked to the stock market.
You can start SIP investments with as little as Rs. 100, although most mutual funds have a minimum investment requirement of Rs. 500. You can also increase your SIP amount over time using the step-up option.
Unlike EPF and PPF, SIPs do not guarantee stable returns. However, if you invest Rs. 12,000 monthly through SIP for 30 years, you could accumulate around Rs. 3,69,71,679 in an equity fund (assuming a return of 12%).
In a hybrid fund (assuming 10% returns), you would expect approximately Rs. 2,49,51,513; in a debt fund (with 8% returns), you would accumulate about Rs. 1,70,11,359. Tax implications on gains depend on the type of fund.
In summary, while EPF and PPF provide safer, more stable returns, SIPs in mutual funds can offer higher returns at increased risk.