EPF vs. PPF vs. VPF:Which is better?



    EPF vs. PPF vs. VPF: Which is better?

    The rising number of young professional shoulders are now understanding the significance of retirement planning. However, with huge investment options, then choosing the right one can be confusing. For investors with less risk, Provident Fund schemes such as PPF, EPF, and VPF are the best options. These schemes are offering stable returns and highly secure making them ideal for long-term goals like saving for retirement planning. Understanding the distinction between the 3 can help you pick the best. Let’s discuss the EPF vs PPF vs VPF.

    Let us first have a quick look at what is PPF, EPF, VPF, and then check their interest rate, duration, tax benefits, etc.

    What is a Public Provident Fund (PPF)?

    PPF is established by the government for self-employed as well as salaried individuals, with an objective to provide you with financial security after retirement along with tax benefits. A PPF is a saving-cum-tax-saving instrument that currently offers you an interest rate of around 8%. As the scheme is backed by the government it is absolutely safe and you can start a PPF with an amount as low as Rs.500. The maximum amount you can invest is Rs.1.5 lakh per annum for a tenor of 15 years.

    What is an Employee Provident Fund (EPF)?

    Under this scheme, if you are salaried, both you and your employer will contribute a monthly sum to your EPF account, provided your organization employs more than 20 people. It is a percentage of funds are saved every month to offer financial stability after retirement. The contributions made towards an EPF equal 12% of your basic salary from both you and your employer, plus dearness allowance. This amount generates an interest of nearly 8.55%. The earnings are tax-free under Section 80C of the Income Tax Act.

    What is the Voluntary Provident Fund (VPF)?

    Part of the amount you invest from your salary over and above your contribution to the EPF account is known as VPF. It is exclusive to salaried individuals and secure as it is backed by the government. Individuals can get benefitted from a high-interest rate that is the same as the EPF rate. You can also enjoy tax benefits and even transfer your VPF in case you switch your job.

    Which one is better?

    Now, when we know what is  PPF, EPF and VPF are. We need to analyze, which is the best one. The comparison between the 3 products based on factors like Eligibility, contribution, tax benefits, returns, withdrawal facility, etc. These factors would help us understand the advantages and disadvantages of each of them. 

    Let’s get started

    Which one is better(Continued…)?

    Applicability:  Only salaried individuals can open VPF and EPF. Whereas, anyone can open a PPF account. All the post offices and most banks offer PPF facilities. You can also begin PPF online by visiting the official website of a bank offering this facility.

    Contribution: Using VPF, an employee can contribute any amount up to 100% of their salary with additional dearness allowance. For EPF, the minimum contribution for employee and employer is 12% of the basic pay with additional dearness allowance of the employee. For PPF, the contribution is optional and can be up to Rs. 1.5 lakhs in a year.

    Eligibility criteria:  non-salaried individuals from the unorganized sector are eligible to open a PPF account either at  Post Office or the bank and earn the same assured high returns. While EPF and VPF schemes can only be applicable by salaried individuals.  VPF subscribers can contribute any amount over and above the necessary 12% contributed to the EPF account.

    Investment Duration: The duration of the investment for PPF is 15 years. After completion of this time duration, you can extend it in 5-year blocks. Whereas for VPF and EPF, the account remains active until the time you retire or resign. In case you change the job, the account can be transferred to another employer.

    Returns: At present, the PPF account offers an interest rate of 7.6%. The interest rate on both VPF and EPF is the same. EPF has a return rate of 8.65%.

    Useful links:

    EPFO Website login: Click here

    EPFO Passbook login: Click here

    Final Thoughts 

    Overall, if you are working in a company with 20 or more employees, it is compulsory for you to invest in EPF. However, if you want to maximize your retirement portfolio, you should consider VPF and PPF.

    I hope you are clear on EPF vs. PPF vs. VPF: Which is better? Keep tuning us.

    Read: Why we need long term investment plan for financial freedom

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