look news india
If you are a working person, then this question must have come to your mind at some time or the other, whether it is better to deposit money in Employee Provident Fund (EPF) or do Systematic Investment Plan (SIP) in Mutual Fund for a secure future in old age or retirement?
Many people believe that mutual funds can create a large corpus in the long run on the basis of stock market, while some people consider government guaranteed EPF as the safest option. To resolve this confusion, the Employees’ Provident Fund Organization (EPFO) has released an official video, in which a detailed comparison of the two has been made on the basis of returns, tax, pension, risk and insurance facilities.
6 main differences between EPF and Mutual Fund
| Features/Conveniences | Employees Provident Fund (EPF) | Mutual Fund |
| investment essentials | For eligible employees and companies Mandatory | completely Voluntary |
| Company Contribution | The company also pays your basic salary. 12% contribution gives | on behalf of the company no contribution |
| returns and risk | decided by the government stable and secure interest | dependent on market fluctuations risky returns |
| Tax Benefits | On deposits, interest and withdrawals EEE (Tax-Free) Discount | gain on Capital Gains Tax (LTCG/STCG) Applicable |
| Pension and Life Insurance | Pension (EPS) + EDLI insurance up to ₹7 lakh | No pension or insurance (only current fund value) |
| Withdrawal rules | Retirement Focused (Strict Rules) | sell whenever you want can get out easily |
1. Company’s Contribution (Employer’s Contribution)
The biggest USP of EPF is that not only money is deducted from your salary, but the company also contributes 12% of your basic pay in your account. At the same time, only that much money you invest from your pocket in mutual funds will go into your portfolio.
2. Security of returns vs huge profits
Mutual fund returns are completely based on the performance of the equity/debt markets. When the market is bullish, it can yield excellent double-digit returns, but during a downturn, there is a risk of loss. On the contrary, the government declares the interest rate on EPF every year, due to which the returns received in it are considered completely safe and certain.
3. Tax saving
According to EPFO, EPF falls in the ‘EEE’ category—that is, the amount deposited, the interest earned on it and the amount received on maturity/withdrawal are tax-free. On the other hand, you have to pay short-term or long-term capital gains (LTCG) tax on gains from mutual funds, depending on the holding period.
4. Pension and free insurance of ₹7 lakh
EPF is not just a savings scheme, but it is a complete social security cover. Through this, eligible employees get lifetime pension (EPS) after retirement. Additionally, in case of untimely death of a member, the family gets free life insurance up to ₹7 lakh under the EDLI scheme along with pension. There is no such additional security feature in mutual funds.
Conclusion: Which one is better for you?
-
For safe investment: If your main goal is to create a fixed and guaranteed fund for retirement without any risk, then EPF is the strongest and safest option.
-
For those looking for higher returns (High Growth): If you have a longer time horizon for retirement and are willing to take market risk to earn higher returns, then equity mutual funds (SIP) may prove to be a better option.
Advice from financial experts: You can adopt a balanced combination of both EPF and mutual funds (50:50 or 60:40) to create an ideal retirement portfolio. This will also give you the benefit of government protection and insurance of EPF, and strong inflation-beating returns through mutual funds.