Say you are an employee earning Rs. 1 crore and Rs. 2L is going to your EPF account, now you have a choice of putting more in EPF or starting an NPS account which one should you choose?

Well, it depends!

Let us assume you have a Rs. 5 crore equity portfolio and a Rs. 2 crore debt oriented portfolio and your wife is also working and has her own portfolio, my answer would be: Continue your EPF for as much time as possible..i.e. 2 years post retirement (ask your HR when does the interst cease to accrue).

The interest that you receive from your PF is very high and is tax free. More importantly you are NOT subject to MTM of the portfolio. You do not suffer interest rate risk, valuation risk, and default risk. What more can you want from a debt product.

You get to use the INTEREST FREE  accumulation exactly the way you wish to use it. Not as a TAXABLE annuity as the NPS will decide to give you. The annuity pricing by NPS is worrisome – I do not have annuity portability, which means I am stuck with the rate that the NPS offers ME on that day when I convert. With my PF accumulation I can choose to buy annuity as and when I want. In fact I encourage people to buy annuities at ages of 65, 70 and 75…without return of corpus. I do not have any such flexibility in Nps.

The huge advantage in EPF is that there is no upper limit of your OWN contribution, there is no tax, there is tax free accumulation (which means on the accumulated amount too you are getting a rate of say 8.6% interest WITHOUT MTM risk). Since you are rich already and have a great direct equity portfolio going, you do not need a govt controlled fund manager – who has a go anywhere mandate. Tsk, tsk they have a go anywhere mandate in debt too. Should I tell you the story of a mf recently buying a back dated paper of a big company? I mean they closed the deal 5 days AFTER THE DOWNGRADE, but backdated to say ‘we buy on X rated paper’?

No, do not take a fund manager risk when you do not even know the mandate. I have trained some of the people there – and when I came out I was happy that I had no money in Nps. It is too broad a mandate, and I would hate a baboo(n) making a law saying ‘any index is allowed’. Rest assured that in 2022 it will be investing in a PSU index or a psu bankex. It is just 4 years away. Already NPS is attracting the political attention. Remember 2 fund houses invested the money in their OWN index funds and you ended up paying AMC twice? Our MSM of course had no time to talk about that faux pas. I spoke to one of the directors …and it took him 5 minutes to understand the game. I do think he is still a director (or trustee, which is worse)..I have lost touch with him.

Of course if you are not this profile, my answer will be different.

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  1. I bet…u Subraji…none of your readers will be of this profile..for most of ur readers the figures in this post are… ohooooooooooooooo

  2. Thanks, for somebody with 1L+ basic, it makes sense to maximize VPF opportunity, assuming equity investments are taken care ?

  3. Just for the disbelievers , I am of the above profile and still diligently come here everyday and yes I max my pf too

  4. Subra sir, the interest earned on EPF post retirement attracts tax. Surprised how you miss this. I am not even half your age. 🙂

  5. dhayaneethi sabhapathy

    I have subscribed to PF and my employer contributes to that also. In addition to this, I have asked my employed to put 10% of my basis into NPS for tax saving purpose. Additionally I am depositing 50000 into NPS more tax exemption. it is not that I am using PF, I use NPS along with all.

    Simple mathematics. I am in 30% tax bracket. By investing 10,000 my total outgo would be 7000 as 3000 will be tax savings. this will grow based on the schemes I have chosen. During my return, money equivalent to initial investment of 6000 can be taken out and only 1000 is locked in lousy annuity product. Not sure why we should not invest in NPS if I already invest in PPF.

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