Is NPS losing its sheen? Should you opt for EPF or PPF as NPS returns fall? (2024)

Is NPS losing its sheen? Should you opt for EPF or PPF as NPS returns fall?

Date : 21/02/2023
Read: 3 mins

Alternative investment avenues as NPS returns fall

The National Pension System (NPS) is a market-linked retirement planning scheme that allows you to create a suitable corpus for your golden years with market-linked returns. However, in the recent past, the equity funds of the NPS scheme do not measure up in terms of their returns. The reason – a poor equity market.

Over the last few years, the equity market has been in turmoil. Small and mid-cap stocks are not performing very well. Since NPS managers follow the multi-cap investment strategy, favouring large-cap stocks hampers the overall returns of mid- and small-cap stocks suffer. As such, NPS has often delivered lower returns compared to Nifty. Have a look –

Is NPS losing its sheen? Should you opt for EPF or PPF as NPS returns fall? (2)

As NPS returns are not up to the mark, investors look elsewhere to generate returns. The Employees’ Provident Fund (EPF) and Public Provident Fund (PPF) have emerged as favourites as investors mull the switch. Should you switch?

What are the EPF and PPF schemes?

The EPF scheme is a retirement scheme for salaried employees where the employer and the employee contribute a part of the salary towards the EPF account. The scheme runs till the employee is actively employed and pays guaranteed returns on investment.

The PPF scheme is available for resident Indians with a term of 15 years. You have to invest in the PPF account every year, and the maximum investment limit per year is Rs.1.5 lakhs. The maturity tenure is 15 years which can be extended in blocks of 5 years. The PPF scheme also pays guaranteed returns on investments.

NPS vs EPF and PPF

Comparing the NPS scheme to EPF and PPF schemes is not feasible since the schemes are very different from one another. Here’s how –

The NPS scheme is a market-linked scheme, while the EPF and PPF schemes are fixed-income avenues, i.e., types of debt investments.
NPS returns are market-linked, but EPF and PPF schemes pay guaranteed rates of return.
The NPS scheme delivers inflation-adjusted returns while the EPF and PPF schemes don’t. as such, returns from these schemes might not keep pace with inflation.
When the equity markets are favourable, you get lower returns from EPF and PPF accounts, while the NPS investment can offer lucrative returns.

Should you switch?

The NPS scheme is a long-term scheme, while the underperformance of the equity markets is a short-term phenomenon. So, over the long term, the NPS scheme can help you amass a sizeable retirement corpus which EPF and PPF schemes might not. Moreover, EPF and PPF schemes limit investment but not NPS. So, you can invest more and earn good returns as the markets improve over the long run. Not to mention the inflation-adjusted returns and tax benefits NPS gives, it is a clear winner.

So, while short-term underperformance might be worrying you, you should relax. The NPS is a long-term investment which would recover from the lag as equity markets correct themselves and deliver inflation-adjusted returns on your investments.