EPF Vs VPF Vs PPF – Which is better?
Provident fund schemes provide high security with stable returns and would be useful during your retirement times. There are Employee Provident Fund (EPF), Voluntary provident fund (VPF) and Public Provident Fund (PPF) schemes where individuals can save money for retirement. However their unique features would help individuals to take decision as to where to invest. In this article we would discuss about EPF Vs VPF Vs PPF, their features and which is a better option.
What is Employee Provident Fund (EPF)
EPF is for salaried employees where employer and employee would contribute to 12% of basic + DA each into this provident fund account. This would generate interest of 8%+ per annum till the retirement age.
What is Voluntary Provident Fund (VPF)
As the name indicates, this is a voluntary provident fund contribution from employee to his provident fund account. This is beyond employee EPF contribution of 12%. However there is no bound from employer to contribute to this VPF. The maximum amount an employee can contribute is 100% of Basic and DA. This would carry same rate of interest of EPF. The amount would be credited to EPF acount and there is no seperate account for VPF.
What is Public Provident Fund (PPF)
PPF is a government scheme meant for un-organized sector / non-salaried employees. Anyone can contribute to PPF account and get safe and assured returns. PPF currently have higher rate of interest comparing to EPF interest rates.
EPF Vs VPF Vs PPF – Features
Now, let us see the difference among these 3 provident fund schemes.
1) Who can open the account (EPF Vs VPF Vs PPF)
- EPF and VPF can be opened only by salaried employees in India.
- On the other side, PPF can be opened by any Indian. NRI’s cannot open PPF account.
2) Interest rates (EPF, VPF and PPF):
- EPF and VPF carry same rate of interest. For FY2012-13, EPF/VPF interest rate was 8.5% per annum.
- On the other hand, PPF interest rate for FY2012-13 was 8.8% per annum. PPF has higher weight age in terms of interest rate.
- However interest rates on provident fund schemes would be decided by Govt. of India every year.
3) Tax Benefit (EPF Vs VPF Vs PPF):
The amount invested in these 3 provident fund schemes are exempted from tax under section 80C up to Rs 1 lakh.
4) Period of investment (EPF or VPF or PPF):
- EPF/VPF account would be active till retirement or when an individual resigns from the organization whichever is earlier. Transfer from one company to another company can be done for EPF/VPF.
- On the other side, PPF account is opened for 15 years period. You can extend this account for another 5 years upon maturity.
5) Loan option (EPF Vs VPF Vs PPF):
- For EPF/VPF, you can apply for loan and withdraw your investment to maximum extent. It is somewhat liquid investment option.
- PPF on other hand, you can withdraw only 50% of the balance available at the end of 4th year upon 6th year onwards. Means you cannot withdraw full or maximum extent.
6) Employer contribution (EPF Vs VPF Vs PPF):
For EPF, employer has an obligation to contribute 12% of basic + DA. Means this would straight away add to your retirement savings. For VPF or PPF there is no such employer obligation to contribute.
7) Mandatory savings from employee (EPF Vs VPF Vs PPF):
For EPF, employee has to do 12% contribution on basic and DA per month. However for VPF or PPF there are no such mandatory savings.
8) Taxation of maturity returns (EPF / VPF / PPF):
- Maturity returns from EPF/VPF are tax free provided if an employee is in continuous service for 5+ years. If the employee has quit before 5 years and needs maturity amount, it would attract tax.
- On the other hand, PPF returns are tax free.
Below is the comparison table of all these features.
Conclusion: If you are salaried employee, you anyway have to contribute to EPF as this is mandatory provident fund scheme. However if you also look for secure returns for retirement savings along with liquidity, you can contribute for Voluntary Provident Fund (VPF) also. Considering limitations for PPF, VPF would score higher.
If you are non-salaried employee, as an alternative, you can invest in Public Provident Fund (PPF).
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EPF Vs VPF Vs PPF – Which is better