Employees’ Provident Fund (EPF), Public Provident Fund (PPF), Voluntary Provident Fund (VPF) and National Pension System (NPS) are some of the investment avenues available for retirement purpose. Most of these schemes are long-term deposit plans and reap huge benefits. However, before investing in these schemes, it is important to understand what works better for whom.

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In view of this, let’s understand these schemes in detail:

EPF

Employees’ Provident Fund or EPF is a mandatory contribution that every company, which has more than 20 employees, is required to deduct from the salary of its employees. In the EPF kitty, the employee contributes 12 percent of the salary while an equal amount is contributed by the employers.

It includes pension component, which employees get after retirement based on the amount accumulated. According to experts, EPF can do wonders with the magic of compounding.

"Most of us generally have a career spanning 40 years. So, if the PF is deducted and accumulated through the 40 years, one can calculate the compounding effect," says Lakshmi Murthy, CPO, ITM Group of Institutions.

The EPF interest rate is decided and notified annually. For the current quarter, the interest is 8.5 percent.

VPF

VPF is just an extension of EPF, which means investors can opt for VPF only if they have an EPF account. Just like EPF, it currently offers a return of 8.5 percent and is only available for salaried individuals.

Under this, the investors can increase their EPF contribution to earn extra returns along with a long-term compounding effect. In this case, the corpus matures post retirement only and pre-matured withdrawal is offered only in select circumstances.

NPS

NPS was originally launched for the government employees in 2004 and extended to the general public in 2009. It gives subscribers the option to set preferred allocation to different asset classes such as government bonds, equity market instruments and corporate debt. It can be opened by NRIs also, unlike PPF.

It offers 2 kinds of account -- Tier 1 and Tier 2. While the Tier 1 NPS account is strictly a pension account which doesn't allow withdrawals, the Tier 2 account -- known as investment account -- is a voluntary saving account. Tax benefits are applicable for investments in the Tier I account only. There is no tax benefit on investment towards the Tier II NPS account.

The maturity tenure is not fixed. An investor can contribute to the NPS account until the age of 60 years with an option to extend the investment to the age of 70 years.

PPF

PPF, introduced by the National Savings Institute in 1968, is majorly a retirement-focused investment instrument that comes with EEE (Exempt-Exempt-Exempt) tax status. The maturity amount and the overall interest earned during the period of investment are tax-free.

It comes with a lock-in period of 15 years. However, the same can be extended within one year of maturity for a period of five years and so on. The rate of interest in PPF is notified by the government and is currently 7.1 percent.

According to experts, PPF is a better option for risk-free investors looking for fixed returns and who don’t wish to invest for too long like NPS and VPF.

Disclaimer: CNBCTV18.com advises users to check with certified experts before taking any investment decisions