EPF is a retirement benefit plan specifically for salaried individuals. Both the employer and employee will contribute to this scheme. On the other hand, the PPF account is specifically designed for old age income security to all the individuals.
The major benefit of investing in these plans is that you can start with a small amount of savings and end up earning a huge corpus of wealth when you retire. Before you invest in either EPF or PPF, it is important you know about these plans.
|Interest Rate||8.5 %||7.1 %|
|Who can Invest||Only Salaried Employee||Anybody can invest in PPF|
|Minimum Investment||24% of Basic Salary||Rs. 500|
|Lock-in Period||Retirement or Resignation||15 Years, Extendable in 5 years block|
|Tax-on Withdrawal||If withdrawn before 5 years||No|
|Loan||Yes- Only in special cases||Yes- From 3rd Year to 6th Year|
|Liquidiy||In case of special cases||No|
|Scheme offered by||Employee Provident Fund Organisation (EPFO)||Select public sector banks and Post Office|
What is an EPF account?
EPF stands for Employee Provident Fund which is a retirement benefit scheme only designed for the salaried employees. It is a scheme to which both employer and employee contribute. You and your employer contribute 12% of your basic salary every month. This scheme is handled by the Employee Provident Fund Organization which is a government organization. As per EPFO rules, both employee and employer contribute a total of 24% of your basic salary to the EPF account. The amount saved in the EPF account can be withdrawn at the time of retirement or changing jobs. The EPF account can be transferred from one organization other, when an employee changes job.
What is PPF account?
A PPF account is an investment instrument which is particularly designed to provide old age income security. It is a savings as well as investment scheme offered by the Government of India. A person can start investing with a minimum amount of Rs. 500 and a maximum of Rs. 1,50,000 in this scheme and get attractive returns which are tax free. The scheme is only open for the residents of India.
Comparison between EPF & PPF
The following difference are seen between EPF and PPF:
- The interest rate on investments in EPF is 8.5 % while it is 7.1 % for a PPF account.
- The money in the EPF account can be withdrawn when you resign from job. But, the deposited amount in PPF cannot be withdrawn until maturity which is 15 years from the date of depositing the amount.
- An individual can avail loan against PPF accounts whereas a person can withdraw money from EPF account to meet personal requirements.
- Returns earned from a PPF account are exempted from tax payment while investments done in EPF qualifies for tax deduction under Section 80C of the Indian Income Tax Act, 1961.
- The EPF account can be accessed by only salaried individuals while a PPF account can be opened by all.
EPF Vs PPF - Where to invest
Based on the above mentioned discussion we can say that EPF is comparatively more beneficial than a PPF account as apart from you, your employer also contributes to your EPF account. It is a kind of joint contribution towards your future. But, there is no provision for such contribution in a PPF account.
Besides, you can withdraw your EPF amount as and when you need it for meeting personal requirements. But, you cannot do so when it comes to a PPF account. Only after maturity, you can withdraw funds from your PPF account. Also, interest rate offered on an EPF account is higher than what is offered on a PPF account.
Based on your requirements and eligibility, you can choose between any of the aforesaid savings schemes.
Different Types of Provident Fund
Listed below are the different types of Provident Funds available in India.
- Employee Provident Fund: In Employee Provident Fund scheme, the employee makes contribution (a fraction of their salary) to the funds regularly on a monthly basis. The contributions made by a group of people is then pooled together and invested in a trust. The fund amount is later paid back to the retiree or they can choose to withdraw it after a certain period of time.
- Unrecognised Provident Fund: This scheme is started between the employer and employee but is not approved by the Commissioner of Income Tax department.
- Statutory Provident Fund: This fund is for employees of government sector, educational institutions and Universities.
- Public Provident Fund: It is a provident fund where in self-employed individuals and children can make a contribution. Unlike other funds, the individual need not be salaried.