EPF vs NPS: Where to invest for retirement with a 25-year horizon? Find out which scheme offers higher returns..

Everyone wants to save for their old age to ensure they don’t face financial hardship after losing a job or retiring. But the big question is: where should one invest for a 25-year horizon? When considering long-term investments, which is better—EPF or NPS? While the EPF offers a guaranteed interest rate backed by the government, the NPS—being market-linked—has the potential to build a significantly larger corpus. Furthermore, it is relatively easy to withdraw funds from the EPF when needed, whereas the NPS has strict lock-in periods and withdrawal rules that remain in place until retirement.

EPF: Guaranteed interest, but not the entire contribution goes into the fund

For private-sector employees, the EPF is the oldest and most trusted scheme. Both the employee and the employer contribute 12% of the basic salary each. However, the employer’s full 12% contribution does not go into your EPF account; instead, 8.33% of it is directed toward the Employees' Pension Scheme (EPS). Recently, the salary threshold for mandatory EPF coverage was raised to ₹25,000 per month, bringing the employer’s maximum contribution to the EPS to ₹2,083. On a positive note, the EPF is currently offering an attractive interest rate of 8.25% for the 2025-26 financial year.

NPS: Now offering the opportunity to invest up to 100% in equity

The NPS is a market-linked scheme where your money is invested in the stock market, corporate bonds, and government securities. As of October 2025, a Multiple Scheme Framework (MSF) has been introduced for non-government employees. Investors can now opt for growth-oriented schemes, allowing them to allocate between 80% and 100% of their funds into equities—an increase from the previous 75% limit. However, it should be noted that schemes under the MSF come with a 15-year lock-in period. How much will a fund accumulate over 25 years with a basic salary of ₹50,000?
Suppose an employee, aged 35, has a basic salary of ₹50,000, which increases by 5% every year. For the EPF (Employees' Provident Fund), a total of approximately ₹9,917 will be deposited monthly—comprising ₹6,000 from the employee and ₹3,917 from the employer. Meanwhile, for the NPS (National Pension System), both the employee and the employer contribute 10% each, totaling ₹10,000 per month.

If the EPF continues to earn 8.25% interest, a substantial and secure fund will accumulate over 25 years, in addition to the separate EPS (Employees' Pension Scheme) pension.

As for the NPS, if it yields an 8% return, the accumulated fund will be lower than that of the EPF. However, with a 10% return, the NPS would outperform the EPF, resulting in a fund of approximately ₹1.87 crore. This gap would widen further if the return reaches 12%.

Rules for withdrawal and taxation at retirement
At the time of retirement, you can withdraw the entire EPF corpus at once. Following the new rules introduced in 2025, it has also become easier to withdraw up to 75% of the EPF corpus during your employment, should the need arise. On the other hand, following the changes effective December 2025, you can withdraw 80% of your NPS corpus as a lump sum upon retirement, while the remaining 20% ​​(at a minimum) must be used to purchase a pension plan (annuity).

Regarding tax benefits...

Withdrawals from the EPF are entirely tax-free, provided you have completed 5 years of continuous service.
In the case of the NPS, employer contributions are eligible for an additional tax exemption—up to 14% under the new tax regime and up to 10% under the old tax regime—which is particularly advantageous for high earners.

Which option is better for you?
If you are looking for secure returns and easy withdrawals without any hassle, the EPF is the best choice. However, if you are willing to take some risk to beat inflation and build a substantial corpus, opt for the NPS. It would be best to maintain an EPF for security while also investing in the NPS for higher growth.

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