When you think of retirement planning, various traditional investment avenues come to mind. If you are a salaried employee, you must have an EPF Account that accumulates money for your retirement. For non-employed individuals, there is the PPF account which can be used for long term savings. Besides provident funds, there are other traditional avenues like bank fixed deposits, post office time deposits, National Savings Certificates, etc. All these traditional retirement options give guaranteed returns even when the markets are volatile. Besides these traditional investment options, there is another option called the National Pension System (NPS).
The NPS scheme is a Government introduced retirement scheme which is market-linked in nature. Thus, while all the afore-mentioned traditional retirement solutions give guaranteed returns, National Pension System (NPS) gives market-linked returns. Despite being market-linked, NPS offers a better rate of return that other traditional retirement options. Let’s understand how –
Retirement options – their meaning and returns
- EPF
EPF stands for Employees’ Provident Fund and is available to salaried employees. This is a fixed interest scheme where the interest rate is fixed and decided by the Government. Under the EPF scheme, 12% of the employee’s salary and dearness allowance is contributed towards the EPF account by the employee and employer both. The interest rate of EPF for the financial year 2020-21 is 8.50%.
- PPF
PPF stands for Public Provident Fund and it is also a fixed-interest investment avenue available for all individual, salaried or non-salaried. The term of the scheme is 15 years which can be extended if required. The interest rate of PPF for the current quarter of the financial year 2020-21 stands at 7.10% which has been sharply reduced from 7.90% p.a.
- Bank fixed deposits
Fixed deposits are fixed tenure deposit schemes that give guaranteed returns on investments based on the investment tenure. The interest rate ranges from 3% to 8% depending on the term for which you invest.
- Post office time deposits
These are fixed tenure deposit schemes done with the post office. The interest rate is guaranteed and it depends on the period of investment. The rate of interest ranges from 6.9% to up to 7.7%.
- National Saving Certificates
These are fixed interest investment schemes wherein you can invest for a duration of five years. The interest rate on the investment for the financial year 2020-21 stands at 6.8% from the erstwhile rate of 7.9% p.a.
- National Pension System
Among the above-mentioned retirement planning options, the interest rate which you can earn is a maximum of 8%. The National Pension System (NPS) scheme, on the other hand, is market-linked and offers different types of funds for your investment. You can invest in debt funds and still get better returns than the returns offered by the above-mentioned schemes. Also, you can easily invest online in NPS.
Here’s a look at the one-year returns offered by the different funds of NPS schemes –
| Name of the fund | Tier I Corporate Debt Fund* | Tier I Government Bond Fund* |
| Birla Sun Life Pension Scheme | 12.42% | 16.99% |
| HDFC Pension Fund | 12.15% | 17.83% |
| ICICI Prudential Pension Fund | 10.57% | 16.99% |
| Kotak Pension Fund | 10.31% | 17.16% |
| LIC Pension Fund | 11.98% | 18.10% |
| SBI Pension Fund | 11.77% | 17.06% |
| UTI Retirement Solutions | 11.37% | 16.73% |
Disclaimer – *Returns are noted as on 28th April 2020
The above figures indicate that the debt funds offered by the NPS scheme, namely Asset Class C and Asset Class G, offer better returns along with NPS benefits than other traditional retirement solutions available in the market. Moreover, since the returns offered by NPS schemes are market-linked, they are inflation-adjusted. In the case of traditional fixed-income retirement options, the rate of return is independent of the inflationary trend of the economy. As such, after the investment period is over, the value of the returns that you earn gets reduced due to the effect of inflation. The real worth of such returns is low. On the contrary, NPS returns depend on market movement which, in turn, is affected by the inflationary trend of the economy. Thus, NPS returns have a higher real value and allow wealth maximization.
So, if you are looking for an ideal retirement solution, bank on NPS benefits. You can earn better returns, save taxes, and also get the promise of lifelong incomes in the form of annuities. You can invest online in NPS easily and select the investment funds as per your preference. So, open an NPS account and create a corpus for a secured retired life.