EPF vs VPF vs PPF: Which one is better?
While we spend our hard-earned money on several things that make us happy, it is quite important to invest a part of that money into something that can support us during our post-retirement days. And as we talk about retirement planning, it actually becomes very confusing to choose from the various options that are available in the market. Some of the most common investment options are Employee Provident Fund (EPF), Public Provident Fund (PPF), Voluntary Provident Fund (VPF), etc. So, let us discuss VPF vs PPF, EPF vs PPF, and VPF vs EPF here. Understanding the difference between these will help us in picking any one.
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Difference Between EPF, PPF & VPF
| Employee Provident Fund (EPF) | Voluntary Provident Fund (VPF) | Public Provident Fund (PPF) |
| Eligibility Criteria: Indian salaried as well as 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 INR 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: INR 500 a year (minimum) INR 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 |
Employee Provident Fund (EPF)
EPF was introduced under the Employee’s Provident Fund and Miscellaneous Act, 1952. In an EPF, a certain percentage of the salary of the employees and funds from the employers are collected at regular intervals. The accumulated money is then offered at the time of retirement to the employees along with interest.
Features of EPF
- In an EPF, both an employee and employer contribute 12% of the basic salary of the employee and dearness allowance to the PF account of the employee. This happens every month
- The employees contribute 12% of their salary to the EPF account, while the employers contribute 8.33% towards the Employee Pension Scheme (EPS) and 3.67% to the EPF.
Benefits of EPF
- The discipline and habit of saving money on a monthly basis for salaried people is one of the biggest benefits of EPF
- The principal amount as well as the interest received on the EPF account are exempted from any income tax
- EPF helps you in earning regular interest on your PF account. Currently, EPFO is offering an annual interest rate of 8.1% p.a.
- EPFO also offers the provision for the nominee or legal heir to withdraw the accumulated amount in case of the sudden demise of the account holder
- The EPF account is fully transparent and the employee can track their EPF balance in real-time. EPF also has dedicated portals for easy updates of details by the employee.
>>Employee Pension Scheme – Eligibility, Benefits and How to Apply
Public Provident Fund (PPF)
Public Provident Fund or PPF is a Government of India-backed scheme for tax-free savings. As it offers fixed returns, it is considered among the safest investment options in India.
Features of PPF
- PPF account can be opened by any Indian citizen at a nationalized bank, post office, or majority of private banking institutions
- Partial withdrawals under certain circumstances are allowed after 5 years of investing in the PPF account.
Benefits of PPF
- Government sets up a quarterly interest rate for PPF accounts and that is paid up on a quarterly basis. Q3 interest rates for FY 22-23 are 7.1%
- Investments in a PPF account can get taxpayers a tax deduction under Section 80C of the Income Tax Act amounting up to INR 1.5 lakh
- Not only PPF accounts are risk-free and provide guaranteed returns from the government, but they can also act as collateral for a loan between the third and sixth year of the account.
Voluntary Provident Fund (VPF)
If the employee wants to contribute a certain amount above their EPF, it is considered a Voluntary Provident Fund.
Features of VPF
- No separate account for VPF is required as the extra amount gets deposited in the employees’ EPF account itself
- The amount that is contributed by the employee is over and above the 12% contribution made towards EPF and the employee can deposit all their basic salary and dearness allowance
- The withdrawal of VPF is only possible after the resignation or retirement from the job.
Benefits of VPF
- One of the benefits of a Voluntary Provident Fund is that the withdrawal from the VPF account after 5 years are exempted from taxation
- VPF account can be used as collateral for a loan under certain conditions
- The interest rate of the EPF scheme also applies to the VPF deposits and the interest amount also gets deposited in their EPF account.
Understanding the difference between these savings schemes can help any employee make the most of their savings and earn a high rate of interest. Depending on the features of these schemes and the investors, financial obligations, liquidity, and withdrawal requirements, they can choose the right scheme amongst this three.
Read More: What is the Voluntary Provident Fund (VPF)?
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FAQs on EPF vs VPF vs PPF
Is PPF better than VPF?
PPF is generally considered better than VPF as the investor can withdraw the amount in PPF account after the lock-in period of 15 years in comparison to the VPF account which can only be withdrawn after retirement.
Are VPF and EPF accounts the same?
While the VPF and EPF are both deposited in the EPF account, EPF is a mandatory component of one’s employment while the VPF is a voluntary contribution.
Can VPF be withdrawn after 5 years?
Yes, you can withdraw VPF under certain circumstances after 5 years.
Is VPF tax-free?
Yes, withdrawals made from VPF after 5 years are exempted from taxation.
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