Retirement Planning

Retirement Planning - Key Investment Options

Option 1: EPF (Employees' Provident Fund)

What It Is:

Mandatory retirement savings for salaried employees with employer contribution.

Key Terms:

Employee Contribution: 12% of basic salary + DA (can be higher voluntarily)
Employer Contribution: 12% of basic salary + DA (split into EPF, EPS & EDLI)
EPFO: Employees’ Provident Fund Organisation that regulates and manages EPF
UAN (Universal Account Number): Unique number that links multiple PF accounts
EPS (Employee Pension Scheme): Part of employer’s contribution for pension benefits
EDLI (Employee Deposit Linked Insurance): Life insurance cover linked to EPF

Key Features:

Mandatory for salaried employees in eligible organisations
Contributions made monthly, with interest compounded annually
Portable across jobs through UAN
Withdrawals allowed under certain conditions (retirement, unemployment, emergencies)

Benefits:

Long-term wealth creation through disciplined savings
Tax benefits: Contributions, interest, and maturity proceeds are generally tax-free (EEE status)
Provides pension (EPS) and insurance (EDLI) cover in addition to savings

Limitations:

Limited liquidity – withdrawals restricted before retirement
Returns are lower than equities over the long term
Dependent on government-declared annual interest rate

Types:

EPF: Provident fund savings account
EPS: Pension component
EDLI: Insurance cover for employees

Best For:

Salaried employees seeking safe, tax-efficient, and disciplined retirement savings.

Current Rate:

EPF interest is declared annually by EPFO — for FY 2024–25, it is 8.25%

Fun Fact:

EPF is one of the world’s largest social security schemes, with over 27 crore accounts managed by EPFO in India!

Option 2: PPF (Public Provident Fund)

What It Is:

A long-term government-backed savings and investment scheme that offers guaranteed returns, tax benefits, and safety of capital.

Key Terms:

PPF Contribution: Individuals can contribute between ₹500 to ₹1.5 lakh per financial year
PPF Account Tenure: 15 years (extendable in blocks of 5 years)
Interest Rate: Declared quarterly by the Government of India (for FY 2024–25, it is 7.1%)
Tax Benefits: Contributions eligible for deduction under Section 80C; interest and maturity proceeds are tax-free (EEE status)
Loan Facility: Loans can be taken between 3rd and 6th year of account tenure
Partial Withdrawal: Allowed from the 7th year onwards under prescribed conditions

Key Features:

Available to all Indian residents (not just salaried employees)
Minimum ₹500 and maximum ₹1.5 lakh annual contribution
Tenure of 15 years, extendable in blocks of 5 years
Interest compounded annually, credited to account yearly
Account can be opened at banks and post offices

Benefits:

Safe, government-guaranteed returns
Triple tax benefit (EEE – Exempt, Exempt, Exempt)
Long-term wealth accumulation through compounding
Loan and partial withdrawal facility available
Useful as retirement planning tool

Limitations:

Long lock-in period (15 years)
Annual deposit cap of ₹1.5 lakh
Interest rate subject to periodic government revision (not fixed long-term)
Non-residents cannot open new accounts (though existing ones can be continued until maturity)

Types:

Individual PPF account (self)
PPF account for minors (opened by guardian)

Best For:

Risk-averse individuals seeking safe, long-term, tax-efficient savings and guaranteed returns.

Historical Note:

PPF was introduced in 1968 to promote small savings in India and continues to be one of the most popular tax-saving investment options even today.

EPF vs PPF Comparison:

Feature	EPF	PPF
What It Is	A retirement savings scheme for salaried employees with employer and employee contributions	A government-backed long-term savings scheme open to all individuals
Best For	Salaried individuals seeking retirement corpus with employer contribution	Individuals (salaried or self-employed) seeking safe, tax-free long-term savings
Returns	Interest rate declared by EPFO (generally 8–9% annually), compounded yearly	Interest rate fixed by the government quarterly (around 7–8%), compounded yearly
Risk	Very low — backed by the government and regulated by EPFO	Very low — sovereign guarantee from the Government of India
Liquidity	Limited — withdrawals allowed only under specific conditions such as retirement, medical, or housing needs	Very limited — 15-year lock-in period with partial withdrawals allowed after 7 years
Ideal For	Salaried employees looking for retirement planning with mandatory savings	Anyone, including self-employed individuals, seeking safe, tax-free long-term wealth creation with flexible contributions

Other Retirement Options:

Option	What It Is	Benefits	Limitations
NPS (National Pension System)	Market-linked pension system with mandatory annuity at retirement	Low cost, equity + debt exposure, extra ₹50,000 tax deduction under Section 80CCD(1B)	Annuity returns taxable, limited partial withdrawals
Mutual Fund SIPs	Market-linked equity, debt, or hybrid fund investments	Flexible, liquid, higher potential returns, customizable	Market risk involved, requires discipline
NSC (National Savings Certificate)	Government-backed fixed-income small savings instrument	Safe, tax deduction under Section 80C, compounding returns	Interest taxable, 5-year lock-in period
SCSS (Senior Citizen Savings Scheme)	Government scheme for individuals aged 60+ with fixed quarterly interest	Safe, regular income, tax-saving under Section 80C	5-year lock-in, interest taxable
POMIS (Post Office Monthly Income Scheme)	Post office scheme providing fixed monthly income	Safe, steady monthly payout, government-backed	5-year lock-in, interest taxable
Insurance Pension / Annuity Plans	Insurer-backed post-retirement income plans	Guaranteed lifelong income	Low returns, not inflation-protected