PPF VS VPF: What to choose for investment
PPF stands for Public Provident Fund and VPF for Voluntary Provident Fund. Both are financial instruments offered by the Government of India to help you save for your retirement. By investing in these schemes, you can receive assured returns on your savings. Well, before investing in these schemes, it is important you know how these investments schemes operate.
How does a PPF account operate?
It is an investment scheme mainly designed for the self-employed individuals and workers of unorganized sectors to provide them with income security at old age. It is fixed income security scheme that enables you to invest a minimum of a minimum amount of Rs. 500 and a maximum of Rs. 1, 50,000. You can guaranteed and tax free returns by investing in a PPF account.
What is a VPF account?
The Voluntary Provident Fund account is another investment option that helps a salaried individual to save more towards their retirement, apart from the mandatory deduction of 12% of the basic salary. Voluntary Provident Funds can be accessed by salaried individuals only. However, employers cannot force an employee to contribute to VPF. It is a voluntary move taken by an employee.
Difference between PPF and VPF
There are some differences exist between a PPF account and VPF account. Listed below are the key difference between both accounts:
- A VPF account is only meant for salaried employees while a PPF account can be opened by self –employed and people working at unorganized sectors.
- Interest offered on a VPF account is same with an EPF account which is 8.75%. On the other hand, a PPF account offers 8.7% on your savings.
- Returns received from a PPF account are free from income tax. On the other hand contributions made towards a VPF account qualifies for tax deduction under Section 80C of the Indian Income Tax Act, 1961.
- In case of a PPF account, the deposited amount cannot be withdrawn unless the account matures. The maturity period of a PPF account is 15 years. But when it comes to VPF accounts, employers can withdraw funds as and when they need to meet their financial requirements. However, if an employee withdraws funds from a VPF account before the account completes 5 years, the amount will taxed.
Where to invest
Based on your eligibility and requirement, you can decide where to invest. Only then you are eligible to open a VPF account when you are a salaried individuals. The VPF account serves as a good investment option for high-income salaried individuals. But, if you are a non –salaried individuals, you have no choice but to invest in a PPF account.