Have EPF through your job? Here’s why investing in NPS too could help young investors build retirement wealth

For young salaried employees, the Employees’ Provident Fund (EPF) is often the first step towards building a retirement corpus. But should investors who already contribute to EPF also put money into the National Pension System (NPS)?

Experts say the two need not be viewed as competing retirement products. While EPF provides a relatively stable retirement foundation, NPS can add market-linked exposure and greater flexibility in asset allocation. For investors in their 20s and early 30s, a long investment horizon also gives their contributions more time to compound.

The decision, however, should depend on the retirement corpus required, existing savings, risk appetite and liquidity needs rather than tax benefits alone.

EPF can form an important part of retirement savings, but investors need to assess whether the corpus it is likely to generate will be sufficient to fund potentially two or three decades after retirement.

“EPF creates an important retirement foundation, but it may not by itself deliver the corpus required for a retirement that could last two or three decades,” said Sumit Shukla, MD & CEO, Axis Pension Fund.

According to Shukla, investors should first estimate the retirement corpus they will require, assess how much their existing EPF savings could contribute towards that target and then identify the gap.

Pranay Ranjan Dwivedi, Managing Director & CEO, SBI Pension Funds, also views EPF and NPS as products that can coexist in a retirement portfolio. EPF is oriented more towards stability, with an interest rate declared periodically, while NPS provides a market-linked component.

Rather than asking whether to choose EPF or NPS, Dwivedi said investors should consider whether they are saving enough for retirement and whether their retirement portfolio is adequately diversified.

A key difference between the two products is how the money is invested.

EPF follows a prescribed investment framework, and individual members do not determine their asset allocation. NPS gives subscribers greater choice across equity, government securities and corporate bonds, besides allowing them to select their pension fund.

Under Common Schemes, equity exposure in NPS can go up to 75%, while eligible schemes under the Multiple Scheme Framework can provide equity exposure of up to 100%, according to the experts.

This can give younger investors an opportunity to take greater market exposure when retirement is still several decades away.

Shukla described EPF as the “stability anchor” and NPS as the “flexible growth layer” of a retirement portfolio.

Investors who do not want to actively manage their asset allocation can also consider NPS's Auto Choice option. Under this approach, the allocation changes with age, gradually shifting from equity towards fixed-income investments as the subscriber moves closer to retirement.