RetirementFinancial Glossary
Defined Contribution Plan
Definition
A retirement plan where the contribution amount is fixed but the retirement benefit depends on investment performance. NPS, EPF, and 401(k) are defined contribution plans. Both employee and employer contribute a fixed percentage of salary; the final corpus depends on how the investments perform over time.
Why It Matters
In a defined contribution plan, you bear the investment risk — if markets underperform, your retirement corpus will be smaller. This makes your asset allocation choice within NPS or EPF critically important. Choosing the aggressive lifecycle option in NPS early in your career can significantly increase your final corpus.