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Provident fund schemes such as EPF, PPF, and VPF are perfect options if you plan to maintain a low-risk profile. All three of them provide stable returns and are highly secure. Therefore, these schemes are ideal long-term saving goals for retirement.
However, there are some factors making each suitable for particular investor profiles.
To clarify all confusions, here is a brief overview of each of these schemes, followed by the comparative study of EPF vs VPF vs PPF.
A Provident Fund is a pension scheme involving a 12% deduction of an employee’s basic salary every month. This amount acts as savings. Further, both the employer and employee contribute a specific percentage to this deduction.
Now, the Provident Fund is classified into 3 categories -
Under this scheme, employees must contribute a fraction of their salaries per month mandatorily. Note that a percentage of contribution is also applicable for employers. Further, participation in this scheme is compulsory for organisations with more than 20 employees. The saved amount is eligible for a tax deduction and earns interest. Also, EPF is a risk-free investment option.
Employees can contribute any percentage of their salaries voluntarily under this scheme to their respective Provident Fund accounts. This contribution must be more than 12%. Now, it can even be 100% of the basic salary and dearness allowance. However, the employer does not need to contribute towards VPF. The interest rate will be the same as EPF, and the entire amount will be credited to EPF accounts.
PPF is a government-assured fixed income security option for self-employed or non-salaried individuals to structure their retirement portfolios. However, anyone can contribute to a PPF account to receive risk-free and guaranteed returns. Besides earning interest upon the amount you invest, you will also get interest on the interest earned. Also, the accumulated balance is exempt from tax.
Now, before you start your savings journey for retirement, go through the difference between EPF and PPF and VPF to make an informed decision.
|
Employee Provident Fund (EPF) |
Voluntary Provident Fund (VPF) |
Public Provident Fund (PPF) |
|
Eligibility Criteria: Indian salaried and non-salaried employees |
Eligibility Criteria: Indian salaried employees |
Eligibility Criteria: Anybody except NRIs |
|
Annual Rate of Interest: 8.10% |
Annual Rate of Interest: 8.10% |
Annual Rate of Interest: 7.1% |
|
Minimum Period of Investment: Retirement or resignation |
Minimum Period of Investment: 15 years |
Minimum Period of Investment: Retirement or resignation |
|
Tax Benefit: Up to ₹ 1 lakh under Section 80C |
Tax Benefit: NA |
Tax Benefit: Triple exemption benefits- deduction on deposits, tax-free returns and zero wealth tax |
|
Investment Duration: Till retirement or resignation (whichever comes before) |
Investment Duration: NA |
Investment Duration: 15 years |
|
Withdrawal: Complete withdrawals |
Withdrawal: Complete withdrawals |
Withdrawal: 50% withdrawal after 6 years |
|
Contribution Percentage: 12% (both employee and employer) |
Contribution Percentage: More than 12% (only employees) |
Contribution Percentage: ₹ 500 a year (minimum) ₹ 1.5 Lakh (maximum) |
|
Taxation on Returns after Maturity: Tax free |
Taxation on Returns after Maturity: No tax |
Taxation on Returns after Maturity: Tax free |
Apart from the VPF, EPF and PPF difference, you should consider the following points to utilise maximum benefit against your contributions.
The above stated EPF vs VPF vs PPF pointers offer comprehensive clarity regarding the best investment option to ensure maximum security post-retirement.
While Employee Provident Fund (EPF) is compulsory in India among the three, Voluntary Provident Fund (VPF) seems to be the best investment tool.
VPF extends the highest interest rate and EEE (exempt-exempt-exempt) tax benefits like EPF. Besides, you can be rest assured of guaranteed returns. Individuals looking for long-term investment options involving less risk can opt for this scheme.
However, only salaried employees are eligible to invest in this scheme. In this regard, the Public Provident Fund (PPF) is an attractive option for non-salaried individuals. But it too comes with a limitation. Individuals can only contribute up to ₹ 1.5 lakh in PPF annually.
If you are a salaried employee and earn higher salaries, you can opt for both the schemes as PPF and VPF are fixed income investment tools with tax-free returns.
Nevertheless, in 2021, the Union Budget implemented the latest Provident Fund condition. According to this term, if the investment in VPF and PPF collectively exceed over ₹ 2.5 lakh in a financial year, the returns earned will not be exempted from tax.
Therefore, it is ideal for gaining in-depth clarity regarding EPF vs VPF vs PPF before starting your investment journey for a smooth post-retirement life.
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