Confused Between PPF And EPF? Here’s What You Should Know Before Investing

You must have heard the terms Employees’ Provident Fund (EPF) and Public Provident Fund (PPF) many times. Both are government managed savings schemes for organized sector employees. Though both the schemes look similar and aim at creating a long term corpus fund for the investors, there are several differences between the two. The interest rates, tenure and tax benefits, among others, differ with respect to both the savings instruments.

Before investing, you must know the details about EPF and PPF schemes. EPF is open only to salaried employees in the private sector, whereas PPF is open to everyone in both organized and unorganized sectors. You should choose between EPF and PPF as per your long-term financial goals, risk appetite and investment objective.

employees provident fund

It is a savings scheme created by the government for organized sector workers. The Employees’ Provident Fund Organization (EPFO), a statutory body established by the Employees’ Provident Fund Act of 1956, administers the fund. EPFO announces interest rates every year. For the current financial year, the interest rate on EPF account has been fixed at 8.10 per cent. EPF or PF is open only to employees or salaried employees who are working in companies or business establishments registered under the EPF Act. Under the EPF Act, it is mandatory for organizations with more than 20 employees to register with the EPFO.

Every month, 12 per cent of the basic salary and dearness allowance of the employee should be deposited in the EPF account and an equal amount is shared by the employer. 8.33 per cent of the employee’s contribution goes to the Employees’ Pension Scheme.

public provident fund

Public Provident Fund (PPF) is an investment program supported by the government. Any Indian citizen, irrespective of his employment status, can be a part of this fund. Any person can invest in PPF from a minimum of Rs 500 to a maximum of Rs 1.5 lakh in a financial year. The government fixes the interest rate every quarter. PPF interest rate is currently 7.1 percent.

A PPF account can be opened in both post offices and branches of participating public and private banks.

Compare

• investment amount: In PPF a person can start with a minimum of Rs 500 and a maximum of Rs 1,50,000 in a financial year. At the same time, there is a mandatory contribution of 12 percent of salary and DA for EPF. It can be extended at will.
• Tenure: PPF is for 15 years and can be extended for a further period of 5 years thereafter. EPF account can be closed only after retirement or after a subscriber has remained unemployed for more than two months.
• tax benefit: Tax benefits are available for PPF investment under section 80C of the Income Tax Act. The maturity amount is also exempt from tax. Contribution to EPF attracts tax benefits while withdrawal from EPF account before completion of five years of employment will be taxable. The maturity amount after retirement is tax-free.

Drawbacks of PPF

• Partial withdrawal from PPF is not allowed until the completion of five years from the date of opening of the account. Even if you need money for an emergency or remain unemployed, you cannot withdraw from PPF.
• Considering the maturity period of 15 years, PPF offers a comparatively lower rate of interest as compared to other savings options like mutual funds or FDs in the same tenure.

Drawbacks of EPF

• Only salaried employees of organizations registered with EPFO ​​are eligible to enroll under this scheme. Self-employed or retired individuals are not eligible.
• The EPF contribution is rigid and is fixed at 12% of the basic pay and DA of the employee with an equal share by the employer. You can contribute more through VPF but it cannot be less than the EPF share.

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