A Systematic Investment Plan (SIP) is a method of investing in mutual funds, whereas an EPF is a savings scheme for private-sector employees. The following table illustrates the difference between the two, so as to decide which one is better:
|
BASIS |
EPF |
SIP |
|
Return |
The interest rate for FY 2018-19 has been fixed at 8.65%. |
Since SIP is a way of investment in mutual funds, the returns from it also depend upon the performance of mutual funds. |
|
Minimum Contribution |
Mandatory contribution made by the employer as well as employee - 12% of salary + Dearness Allowance |
Can be as low as Rs.100; depends upon the mutual fund in which the individual is investing. |
|
Taxation |
The employee’s contribution to EPF every year is exempt from income tax, under Section 80C. Also, the interest earned is tax exempt.
|
It attracts both short term and long term capital gains tax, tax saving can be done by investing in ELSS. |
|
Risk |
It is a relatively safe investment option. |
Since returns are linked to markets, it is riskier. |
Therefore, which option among EPF and SIP is better depending upon the risk profile, returns and the flexibility desired etc. by the individual. EPF wins in case of tax saving and long term, risk-free wealth accumulation. However, investment in mutual funds through SIP wins in case of higher returns linked to the market and flexibility in terms of the lock-in period requirements.
