EPF vs PPF vs NPS: Which Retirement Savings Option Offers Better Returns?
EPF and PPF offer stable, government-backed returns, while NPS provides higher long-term growth potential through market-linked investments. Here's how the three retirement savings options compare.
EPF, PPF, and NPS are popular retirement savings options, but their return potential differs. While EPF and PPF offer stable, government-backed returns, NPS provides higher long-term growth potential through market-linked investments, making it suitable for investors with a higher risk appetite.
A 2024 study by Axis Max Life Insurance on retirement preparedness in India found that 63% of respondents believed that their retirement savings would last no more than 10 years.
The fear of outliving their retirement corpus is leading many investors to look beyond traditional instruments to seek higher returns from their retirement savings. Even a small outperformance of 1-2% in annualised returns over a 10-20 year period can lead to a bigger corpus due to the power of compounding.
In this article, I will compare EPF vs PPF vs NPS primarily from a returns perspective.
EPF vs PPF vs NPS: Which Retirement Savings Option Offers Higher Returns?
The following table shows how even a small difference in returns (assumed on the basis of the last 10-year trend) can make a substantial difference over the long term.
|
Criteria |
EPF |
PPF |
NPS (Active Equity 75%) |
|
Monthly contribution |
₹10,000 |
₹10,000 |
₹ 10,000 |
|
Average Returns (assumed) |
8.50% |
7.50% |
10% |
|
Corpus size (approx.) after 10 years |
₹18.5 lakh |
₹17.66 lakh |
₹20.50 lakh |
EPF: Attractive Fixed Returns
The interest rates offered on EPF have usually ranged between 8% and 9% in recent years, with 8.25% announced for the Financial Year 2026. As its interest income is tax-free, EPF generates one of the highest tax-adjusted returns among fixed income instruments in India.
As EPF comes under the administrative control of the Union Ministry of Labour & Employment, it is backed by a sovereign guarantee. It means that the Union Government itself guarantees to repay your accumulated EPF corpus without fail.
However, EPF has two drawbacks. First, your EPF interest income is credited back to your EPF account once a year, which reduces its compounding potential compared to other instruments offering more frequent compounding.
Another is the size of the monthly contributions, which is usually too small for most employees to create an adequate retirement corpus. The solution is to invest through the Voluntary Provident Fund (VPF), which allows EPF subscribers to make additional contributions of up to 100% of their basic salary and dearness allowance to their EPF corpus at the same interest rate.
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PPF: A Tale of Reducing Return
The Ministry of Finance sets the PPF interest rate in advance every quarter, and the interest rate offered for the current quarter is 7.1%. As the table below shows, PPF interest rates have stagnated over the last few years.
Table of PPF interest rates over the last 10 years
|
Time Interval |
Interest rate (%) |
|
1 July 2016 -30 September 2016 |
8.10% |
|
1 October 2016 -31 March 2017 |
8.00% |
|
1 April 2017 -30 June 2017 |
7.90% |
|
1 July 2017 -31 December 2017 |
7.80% |
|
1 January 2018 -30 September 2018 |
7.60% |
|
1 October 2018 -31 June 2019 |
8.00% |
|
1 July 2019 -31 March 2020 |
7.90% |
|
1 April 2020 -30 June 2026 |
7.10% |
Source: National Savings Institute
While the interest income of PPF is also tax-free, it is credited to your PPF account once a year. This also reduces the compounding benefit.
As the PPF investment per subscriber has been capped at ₹ 1.5 lakh per financial year, investing in PPF alone would fail to create an adequate retirement corpus for most.
NPS: Market-Linked Higher Potential
The returns generated by NPS are market-linked and would primarily depend on his/her chosen investment option, asset allocation ratios and the performance of the chosen Pension Fund Manager (PFM).
NPS subscribers have two options to choose from, Active Choice and Auto Choice.
Active Choice: This option allows the subscriber to decide how to spread his contributions and existing investments across various asset classes. Here is a list of eligible asset classes for NPS Active Choice along with their investment limits.
|
Asset Class |
Underlying securities |
Maximum Limit |
|
Equity (E) |
Equity and equity related instruments |
Up to 75% |
|
Government Securities (G) |
Central and state government bonds and related instruments |
Up to 100% |
|
Corporate Bonds (C) |
Corporate bonds and related instruments |
Up to 100% |
Auto Choice
NPS subscribers lacking the required skills or knowledge to manage their NPS asset allocation ratios can opt for the Auto Choice. Under this option, the NPS contribution is invested in a life-cycle fund whose allocation across the asset classes would change as per the age of the subscriber.
Which NPS option offers the highest returns?
We are all aware of the fact that equity as an asset class beats other asset classes by a wide margin over the long term. Creating a post-retirement corpus is a long-term financial goal for most subscribers.
NPS subscribers having the highest exposure to equities under the active choice option for a long investment horizon are likely to generate higher returns than those opting for NPS (non-equity options), NPS (auto-choice option), PPF, EPF, etc.
Let's compare the 10-year performance of 10 Pension Fund Managers in the three eligible asset classes of the NPS Tier I Scheme, which highlights the outperformance potential of the equity option.
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Tier I Equity (E) Option
Here is a table of returns generated by Tier I Equity Pension Funds
|
Pension Fund |
Returns (%) |
||||
|
1 Year |
3 Year |
5 Year |
7 Year |
10 Year |
|
|
Aditya Birla Sun Life Pension Fund |
-3.63 |
10.89 |
10.54 |
12.16 |
-- |
|
AXIS Pension Fund |
-7.33 |
9.57 |
-- |
-- |
-- |
|
DSP Pension Fund |
-11.44 |
-- |
-- |
-- |
-- |
|
HDFC Pension Fund |
-4.08 |
11.11 |
10.66 |
12.49 |
13.06 |
|
ICICI Prudential Pension Fund |
-2.92 |
12.41 |
11.60 |
12.86 |
12.87 |
|
Kotak Pension Fund |
-5.24 |
11.62 |
11.36 |
12.73 |
12.71 |
|
LIC Pension Fund |
-5.04 |
10.52 |
10.65 |
11.86 |
11.77 |
|
SBI Pension Fund |
-2.88 |
9.39 |
9.66 |
11.02 |
11.67 |
|
Tata Pension Fund |
-2.69 |
12.71 |
-- |
-- |
-- |
|
UTI Pension Fund |
-6.25 |
11.42 |
10.82 |
12.24 |
12.54 |
Source: Value Research, Data as of 11 June 2026
Tier I Government Bond (G) Option
Here is a table of returns generated by Tier I Government Bond Pension Funds
|
Pension Fund |
Returns (%) |
||||
|
1 Year |
3 Year |
5 Year |
7 Year |
10 Year |
|
|
Aditya Birla Sun Life Pension Fund |
1.42 |
6.49 |
6.10 |
7.19 |
-- |
|
AXIS Pension Fund |
1.19 |
6.13 |
-- |
-- |
-- |
|
DSP Pension Fund |
0.33 |
-- |
-- |
-- |
-- |
|
HDFC Pension Fund |
0.31 |
5.98 |
5.58 |
6.94 |
7.67 |
|
ICICI Prudential Pension Fund |
1.11 |
6.24 |
5.75 |
6.95 |
7.66 |
|
Kotak Pension Fund |
0.34 |
5.79 |
5.58 |
6.81 |
7.58 |
|
LIC Pension Fund |
1.16 |
6.39 |
5.89 |
7.16 |
8.33 |
|
SBI Pension Fund |
1.17 |
6.42 |
5.87 |
7.06 |
7.77 |
|
Tata Pension Fund |
0.55 |
5.98 |
-- |
-- |
-- |
|
UTI Pension Fund |
1.16 |
6.48 |
5.98 |
7.01 |
7.53 |
Source: Value Research, Data as of 11 June 2026
Conclusion
Of the three instruments, the NPS active option with the highest possible exposure to equities offers the highest return potential. This option suits salaried investors having a higher risk appetite as they already have fixed income exposure through mandatory contributions to EPF. Investors having a very low risk appetite can opt for PPF and/or bond-heavy NPS options to make additional investments for their retirement corpus.