If you’re a risk-averse investor, provident fund schemes like the Employees’ Provident Fund (EPF), Voluntary Provident Fund (VPF), and Public Provident Fund (PPF) are the icing on the cake. These schemes are not only completely safe but also offer stable returns, making them excellent for long-term goals like retirement planning. Let’s understand these three powerful schemes and compare their interest rates, tenure, and tax benefits in detail.
Employees’ Provident Fund (EPF)
EPF stands for Employees’ Provident Fund. This scheme applies to organizations employing 20 or more employees. Under this scheme, both the employee and the employer contribute 12 percent of the employee’s basic salary and dearness allowance each month to the EPF account. This amount grows over time with interest. It is a retirement and savings scheme.
Voluntary Provident Fund (VPF)
VPF stands for Voluntary Provident Fund. As the name suggests, it is a voluntary scheme. In addition to their mandatory 12% contribution, employees can deposit an additional amount into their EPF account, up to 88% of their basic salary and dearness allowance. The interest rate on VPF is the same as that of EPF. It is best suited for those who want to save more.
Public Provident Fund (PPF)
PPF stands for Public Provident Fund. It is a long-term savings scheme run by the government. Any Indian citizen (except NRIs and HUFs) can deposit between ₹500 and ₹1.5 lakh annually. The tenure is 15 years.
Which is better among EPF, VPF, and PPF
This comparison will help you choose the right scheme according to your financial situation.
Eligibility and Mandatory Contributions
EPF is mandatory for employees working in organizations with 20 or more employees, while PPF is available to all Indian citizens. VPF is an optional top-up facility only for employees registered with EPF. While 12% of basic salary is mandatory in EPF, a minimum annual contribution of ₹500 and a maximum of ₹1.5 lakh is required in PPF.
Interest Rate and Tenure
The interest rate on EPF and VPF is the same as per government notification, but higher (approximately 8.25%) than that of PPF (approximately 7.1%). The tenure of EPF and VPF is until retirement, while PPF has a tenure of 15 years.
Tax Benefits and Withdrawals
All three schemes offer the unique EPF benefit of being tax-free, meaning contributions, interest, and withdrawals are tax-free. Withdrawals from EPF and VPF are subject to retirement, unemployment, or certain special needs. Partial withdrawals are allowed after 5 financial years and full withdrawals after 15 years.
When, Where, and How Much to Invest
If you work for a company with 20 or more employees, investing in EPF is mandatory, which is a strong start. If you want to further enhance your retirement savings, you can consider VPF and PPF. VPF is the easiest way to deposit additional funds into your EPF account and offers the benefit of EPF’s higher interest rate. PPF is a great option for those who are self-employed or want more tax benefits. You can visit the website of any major bank to open a PPF account. Choosing the right plan can definitely strengthen your retirement fund significantly.