VPF vs NPS: Which Retirement Savings Option is Better?

Planning for retirement is one of the most critical financial decisions you will make in your lifetime. With options like Voluntary Provident Fund (VPF) and National Pension System (NPS) available, choosing the right investment avenue can be overwhelming. Both schemes offer unique benefits suited to different financial goals, risk appetites, and retirement planning strategies. In this article, we will explore the differences between VPF and NPS, their suitability for retirement planning, and actionable advice to help you make an informed decision.

VPF and NPS are popular retirement savings schemes, but they differ significantly in terms of structure, returns, and tax benefits. Below is a detailed comparison of the two investment options:

VPF at a glance:

• Voluntary Provident Fund (VPF) is an extension of the Employee Provident Fund (EPF), allowing salaried individuals to contribute beyond the mandatory limit of 12% of their basic salary and dearness allowance.
• It offers a fixed interest rate (8.25% for FY 2024-25) and is ideal for risk-averse investors looking for stability.

NPS at a glance:

• National Pension System (NPS) is a market-linked pension scheme regulated by the Pension Fund Regulatory Authority of India (PFRDA). It offers higher returns (9%-12%) based on market performance and is suitable for long-term investors willing to accept risk.

For those seeking guaranteed returns alongside their VPF or NPS contributions, a Bajaj Finance Fixed Deposit can be an excellent addition to your portfolio. With interest rates of up to 7.30% p.a. for senior citizens, it provides a secure and predictable investment option to complement your retirement savings. Start small with just Rs. 15,000 and enjoy the benefits of steady growth without market-linked risks.

Choosing between VPF and NPS depends on your financial goals, risk tolerance, and retirement needs. Here is a breakdown of the pros and cons of each option:

VPF

Pros:

• Guaranteed returns with a fixed interest rate of 8.25%.
• Tax-free withdrawals after five years of continuous investment.
• Ideal for salaried individuals who prefer low-risk investments.

Cons:

• Limited to salaried employees; self-employed individuals cannot invest.
• Returns are comparatively lower than market-linked schemes like NPS.
• Premature withdrawals are subject to tax deductions.

NPS

Pros:

• Potential for higher returns (9%-12%) through diversified investments in equities, corporate bonds, and government securities.
• Tax benefits of up to Rs. 2 lakh under Section 80C and Section 80CCD(1B).
• Professional fund management ensures optimal allocation of assets.

Cons:

• Market-linked returns carry risks, making it unsuitable for conservative investors.
• Withdrawals are restricted until the age of 60, with 40% of the corpus mandatorily invested in annuities.
• Less predictable returns compared to VPF.

To balance stability and growth, many investors opt for a combination of VPF and NPS. While VPF provides assured returns, NPS offers the opportunity for higher growth through market-linked investments. Additionally, diversifying your portfolio with a Bajaj Finance Fixed Deposit can further enhance your retirement savings by offering guaranteed returns.

Both VPF and NPS have their merits, and the choice between the two depends on your financial priorities. If you are a salaried individual seeking guaranteed returns and low-risk investments, VPF is a suitable option. On the other hand, if you are willing to accept market-linked risks for potentially higher returns, NPS is a better fit. For those looking to strike a balance, combining VPF and NPS in your retirement portfolio can be a prudent strategy.

Additionally, diversifying your savings with a Bajaj Finance Fixed Deposit can provide predictable regular (monthly, quarterly, half-yearly or annual) payouts, ensuring financial stability during retirement. Start investing today to secure your future!