NPS vs EPF vs PPF: Are You 40 Years Old? How Much Corpus Can You Generate in 20 Years in Each Scheme?
Turning 40 is a milestone. For many, it’s the age where
career is stable, income is steady, and thoughts about retirement planning
become serious. You may already have some savings, but the next 20 years are
critical to secure a comfortable, stress-free retirement.
In India, three popular savings and investment schemes often
come into the spotlight for retirement planning: NPS (National Pension System),
EPF (Employees’ Provident Fund), and PPF (Public Provident Fund). All three are
government-backed, relatively safe, and designed for long-term wealth building.
But the big question is: If you are 40 years old today, how
much corpus can you build in each scheme over the next 20 years?
Let’s explore in detail.
A Quick Introduction to the Three Schemes
1. Employees’ Provident Fund (EPF)
• Meant
for salaried employees working in organizations.
• Both
employer and employee contribute 12% of basic salary + DA each month.
• Current
interest rate: around 8.25% per year (announced annually by EPFO).
• Safe,
guaranteed returns.
2. Public Provident Fund (PPF)
• Open to
all individuals, whether salaried or self-employed.
• Maximum
contribution: ₹1.5 lakh per year.
• Current
interest rate: 7.1% per year, compounded annually.
• Lock-in:
15 years, but extendable in 5-year blocks.
3. National Pension System (NPS)
• Voluntary
retirement savings scheme.
• Open to
all Indian citizens (salaried or self-employed).
• Flexible
contributions — you can invest monthly or lump sum.
• Returns
are market-linked, typically 9–11% per year (long-term average).
• Partial
withdrawal allowed, but 60% corpus can be withdrawn tax-free at 60 years; the
remaining 40% must be used to buy an annuity (pension).
Assumptions for 20-Year Calculations
To make a fair comparison, let’s assume the following:
• You are
40 years old today and want to invest regularly for 20 years (till age 60).
• Contributions:
o EPF:
Assume monthly basic salary of ₹50,000 (for simplicity). Both employer and
employee contribute 12%.
o PPF:
Maximum annual contribution of ₹1.5 lakh.
o NPS:
Contribution of ₹50,000 per month (₹6 lakh annually), since it allows higher
voluntary savings.
• Returns
assumed:
o EPF:
8.25% fixed.
o PPF: 7.1%
fixed.
o NPS: 10%
average annual return (equity + debt exposure).
Corpus Calculation for Each Scheme
1. EPF Corpus at 60
• Contribution:
12% of ₹50,000 = ₹6,000 per month from employee + ₹6,000 per month from
employer = ₹12,000 per month total.
• Annual
contribution: ₹1.44 lakh.
• Interest
rate: 8.25% per year.
• Time: 20
years.
Using compound interest formula for recurring contributions:
👉 At 60, your EPF corpus
will be approximately ₹71–72 lakh.
This is without accounting for salary hikes. In reality,
with annual increments, the contribution increases, so the final corpus may be
even higher — possibly ₹90 lakh–₹1 crore.
2. PPF Corpus at 60
• Contribution:
₹1.5 lakh annually (maximum allowed).
• Interest
rate: 7.1% per year.
• Time: 20
years.
Future Value calculation:
👉 At 60, your PPF corpus
will be approximately ₹61–62 lakh.
This corpus is 100% tax-free — no tax on investment, no tax
on interest, and no tax at maturity.
3. NPS Corpus at 60
• Contribution:
₹50,000 per month = ₹6 lakh annually.
• Expected
return: 10% average per year.
• Time: 20
years.
Future Value calculation:
👉 At 60, your NPS corpus
will be approximately ₹3.8 crore–₹4 crore.
However, there’s a key difference:
• You can
withdraw 60% tax-free (₹2.3–₹2.4 crore).
• The
remaining 40% (₹1.5–₹1.6 crore) must be used to purchase an annuity, which will
pay you a monthly pension.
Insights from the Numbers
1. EPF and
PPF Are Safe, But Limited
Both schemes are designed for capital protection rather than
high growth. They are government-backed, so your money is secure, but the
contribution caps (₹1.5 lakh for PPF, % of salary for EPF) restrict wealth
creation.
2. NPS
Offers Bigger Growth Potential
Since NPS is market-linked, it has the potential to create
3–4 times more wealth compared to EPF or PPF in 20 years. This makes it highly
attractive for those starting late (at 40) and still wanting a sizeable
retirement corpus.
3. Liquidity
Matters
o EPF:
Withdrawals allowed for education, home purchase, or medical emergencies.
o PPF:
Locked for 15 years, but partial withdrawals allowed from year 7.
o NPS:
Locked till 60 years, with very limited partial withdrawal allowed.
If you want flexibility, EPF scores higher. If you want
discipline, PPF and NPS enforce it.
4. Taxation
Differences
o EPF &
PPF: Completely tax-free.
o NPS:
Partially taxable, since 40% must go into annuity and pension from annuity is
taxable.
________________________________________
Which is Best for a 40-Year-Old?
It depends on your priorities:
• If you
are risk-averse and want safety: EPF and PPF are better, though returns are
modest.
• If you
want a large retirement corpus: NPS clearly beats the others.
• If you
want balanced growth: Use all three together — EPF for salaried savings, PPF
for tax-free secure growth, and NPS for aggressive long-term wealth.
A Smart Combination Strategy
Instead of choosing one, here’s how a 40-year-old can
smartly combine all three:
1. Continue
EPF (if salaried) — it’s compulsory and builds a solid base. Don’t withdraw
unless necessary.
2. Max Out
PPF — invest ₹1.5 lakh annually. It’s safe and tax-free.
3. Invest
Extra in NPS — depending on your risk appetite, allocate more funds here. Even
₹20,000–30,000 monthly can grow into a crore-plus corpus in 20 years.
By diversifying, you get:
• Safety +
Tax-free growth (PPF, EPF)
• High
growth potential (NPS)
Conclusion
At 40, you still have 20 years — enough time to build
serious wealth through disciplined investing. Here’s what happens by 60 if you
stick to the three schemes:
• EPF: ₹72
lakh–₹1 crore (tax-free)
• PPF: ₹62
lakh (tax-free)
• NPS:
₹3.8–4 crore (partially taxable)
That’s a combined corpus of ₹5–6 crore, enough to secure a
comfortable retirement.
The lesson? Don’t ignore compounding, even at 40. By using
EPF, PPF, and NPS together, you can build a retirement plan that balances
safety, growth, and tax efficiency.
As they say: “The best time to plant a tree was 20 years
ago. The second-best time is today.”
So if you’re 40 and wondering whether you’re late, relax.
Start now, stay consistent, and let time and compounding do their work.
End
