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How to Maximize Returns From EPF and NPS Investments? Research Team | Posted On Thursday, January 23,2020, 03:47 PM

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How to Maximize Returns From EPF and NPS Investments?



Planning for retirement can be time-consuming and overwhelming at times nonetheless it is as important as planning for your important life goals. With the right investment tools, you can mobilize your savings and create a large corpus for a financially stable retirement. Thankfully retirement planning tools like EPF and NPS give you an avenue to save for your retirement along with benefits like the flexibility of investment and withdrawals.

With factors like inflation that works to lower your savings, you need to align your savings keeping in mind your requirement at a future date. The amount that you may feel sufficient now, may not be adequate during your golden years. Thus to avoid an unstable future, you must try to gain maximum benefits from the investment tools available with you.

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In this article, we will try to discuss how you can gain maximum benefit from the two instruments to ensure that your golden years are secure and stress-free

See Also: Benefits of National Pension System

How to Maximize Returns From EPF and NPS Investments?​

Hold EPF money till retirement:

To maximize your returns and create a good corpus for the retirement you have to hold your EPF funds till maturity and not utilize it for your short-term needs. People with little to no savings often dip into their EPF corpus to meet funding requirements. The recent changes in the EPF withdrawal have made it easier for people to access their EPF for reasons like funding a medical procedure, the marriage of children or for making downpayment for a house provided they meet the specified guidelines. Members of EPF can withdraw their entire PF savings if they remain unemployed for more than 2 months.

Make sure not to seek EPF withdrawals for such instances. Denote a portion of your savings towards your contingency fund so that you can fund expenses like a medical procedure or temporary unemployment.

Increase contribution via VPF:

If you plan is to create a sizeable corpus then you can also opt for VPF. Voluntary provident fund is a tax saving instrument where the contributor of the fund can increase the amount of contribution to EPF. This facility is mainly provided to individuals who have a constant source of income through a specific salary account.

You can increase your EPF corpus by increasing your contributions through VPF. Thus you can now invest beyond the threshold limit of 12% while getting the same tax benefits on your contribution. Additionally, your investments through VPF enjoy the same interest rate as EPF. Thus it is a much better option compared to instruments like PPF that offers a lower interest rate on deposits.

See Also: PPF or NPS: Which One is a Better Investment Tool?

NPS Investment in Equity:

With time NPS is becoming more and more popular among investors due to the various perks offered by it. NPS has evolved as an additional tax saving instrument where investors can enjoy an added savings of Rs. 50,000 on top of the yearly threshold limit of 1.5 lakh. Also, it provides investors with adequate flexibility and options. It allows you to deploy almost 75% of the corpus in equity, whereas EPF invests only 15% of the incremental corpus into equities. Higher equity exposure allows you to amplify your returns over the investment tenure. Also, NPS is an efficient investment as it continues to be the lowest cost offering despite the multiple layers of charges involved. Thus NPS has the potential to create wealth at a faster pace when compared to other retirement planning instruments.

Utilize NPS tax benefits on retirement:

 At times, people prefer to put aside a considerable sum of money even if their requirements are much lower. Thus they end up locking money for long periods purely to avail the tax benefits. Even if you have adequately planned your retirement, you may consider investing in NPS.

Thus you can use the tax benefits at retirement as NPS belong to both EEE and EET category of investment. Thus the 60% corpus you receive on the maturity of the scheme is completely tax-free. The remaining 40% of the corpus that will be used to buy an annuity plan is subjected to taxes. Thus NPS is not only aimed to give a good retirement corpus but also provides retirees with better tax benefits.

See Also: New Changes In NPS Scheme

Reinvest Returns in Government Schemes:

People often fear that they might outlive their resources and thus they often purchase annuity plans to receive a regular pension. Instead of spending your entire corpus in purchasing annuities, you can save some amount in FDs or government schemes like SCSS. These investments will allow you to retain the corpus along with providing a fixed income.

The annuity plans come with a regular income for a fixed tenure and the pension you receive depends on various factors. Thus if you invest in NPS, a part of your savings is already used to purchase an annuity plan. So you can use the remaining payout to secure your golden years through fixed investments like FD, NSC or you can utilize it to create regular income through government schemes like SCSS, POMIS or bank MIS.

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