There are four government-backed retirement schemes – Employees’ provident fund (EPF), voluntary provident fund (VPF), National Pension Scheme (NPS) and Public Provident Fund (PPF). While the EPF and VPF are available to the salaried class, NPS and PPF are open to all.
Before you make your investment, you should know that of the three schemes, NPS is market-linked and the returns are based on the performance of the other investments. Meanwhile, the remaining schemes have a fixed interest rate.
In normal circumstances, employees use a combination of EPF and PPF, but if they want to increase EPF contribution they can opt for the VPF. In recent years, EPF has offered higher interest returns than PPF.
So, here are the differences that will help you decide between EPF and PPF. This will help you decide whether you should go for PPF or increase EPF contribution.
– In PPF, the interest rate offered could change every quarter. Currently, the rate stands at 7.1%. The minimum contribution of PPF is Rs. 500 and the maximum is Rs 1.5 lakh a year.
– In EPF, an employee can contribute 10% or 12% of the basic salary, and the employer matches it. For example, if the basic salary is Rs. 30,000, your employer can contribute up to Rs. 3,600 each month.
However, since the employer contribution is capped at 12% maximum, an employee can increase his/her contribution through VPF.
– EPF’s interest rate is declared after a financial year is completed. For example, contributions made in FY 2020-21, the rate will be calculated in the current financial year.
Reportedly, EPFO has recommended 8.5% interest for the previous financial year, however, the government has not made it official.
– In both schemes, individuals are open to getting a tax deduction upon investment.
– At present, the PPF interest rate is lower than the EPF. In EPF, you must transfer the balance from the previous employer to the new one once you leave the job.
– If you choose to withdraw, you may be taxed if you have not complete five years with your employer.