EPF Vs PPF Vs VPF: Which Is Most Suitable Scheme, All You Need To Know

While there are numerous choices available, government-backed retirement plans are often considered more secure. Three popular options for investment are VPF), EPF, and PPF

Employee Provident Fund (EPF) is a government-backed retirement savings scheme available to salaried employees in India.

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Are you confident about your future financial security? It's never too early to start discussing various investment options for retirement planning in today's fast-paced society. While there are numerous choices available, government-backed retirement plans are often considered more secure. Three popular options for investment are the Voluntary Provident Fund (VPF), Employee Provident Fund (EPF), and Public Provident Fund (PPF). Each plan has its own withdrawal rules, eligibility criteria, and risk factors. By understanding the details and aligning them with your financial goals, you can determine which scheme is more suitable for your needs. 

Now, let's analyse the three options to identify the better choice for maximizing returns.

Employees' Provident Fund  

Employee Provident Fund (EPF) is a government-backed retirement savings scheme available to salaried employees in India. It is managed and regulated by the Employees' Provident Fund Organization (EPFO), which is under the Ministry of Labour and Employment. Under the EPF scheme, both the employer and the employee contribute a fixed percentage of the employee's basic salary and dearness allowance to the fund. The current contribution rate is 12 Per cent of the employee's basic salary and dearness allowance. The contributions are deducted from the employee's salary on a monthly basis. Companies with more than 20 employees have to mandatorily comply with the Employee Provident Fund (EPF) schemes of the government. The funds accumulated in the EPF account earn a specified rate of interest, which is determined by the government each year. The interest is compounded annually and is tax-free. The EPF scheme aims to provide financial security and retirement benefits to employees by building a corpus over their working years.

EPF not only serves as a retirement savings tool but also offers other benefits such as partial withdrawals for specific purposes like purchasing a house, medical emergencies, or education. Additionally, the EPF scheme provides life insurance and disability insurance coverage to employees. Upon retirement, the employee can withdraw the accumulated funds from the EPF account. Alternatively, they can choose to receive a monthly pension (known as the Employees' Pension Scheme) if they have completed a minimum number of years of service.

Public Provident Fund   

Public Provident Fund (PPF) is government's long-term savings scheme offered specifically through authorised banks and post offices. It is designed to encourage individuals to save for their retirement and build a financial cushion for the future. PPF operates as an individual account where an individual can open and maintain only one PPF account in their name. The account has a lock-in period of 15 years, which means the funds deposited cannot be withdrawn fully until the completion of this period. However, partial withdrawals are allowed from the 7th year onwards with certain conditions

Contributions made to the PPF account are eligible for tax benefits under Section 80C of the Income Tax Act. The minimum annual contribution required is Rs 500, while the maximum limit is Rs 1.5 lakh per financial year. The interest earned on PPF deposits is determined by the government and is currently tax-free.

The interest rate for PPF is set by the government on a quarterly basis and is usually higher than other fixed-income savings options. The interest is compounded annually, and the accumulated balance grows over time. The PPF account can be extended beyond the initial 15-year period in blocks of 5 years. The rate of interest currently stands at 7.1 per cent.  

Voluntary Provident Fund  

The Voluntary Provident Fund (VPF) is an extension of the Employee Provident Fund (EPF) scheme. It is available to salaried employees already contributing to their EPF accounts. VPF allows employees to voluntarily contribute a higher percentage of their salary towards their EPF savings. While EPF contributions are mandatory and have a fixed rate of 12 per cent of the employee's basic salary and dearness allowance, VPF allows employees to contribute an additional amount voluntarily. The employee can choose the percentage of their salary they wish to contribute as VPF, subject to certain limits.

It is important to note that VPF contributions are subject to the same withdrawal rules and regulations as EPF. The accumulated funds in the VPF account can be withdrawn upon retirement or under specific circumstances such as resignation, unemployment, or financial emergencies, as per the EPF withdrawal rules.

VPF is a voluntary savings option for EPF contributors who wish to enhance their retirement corpus by increasing their contribution percentage. It allows individuals to have greater control over their savings and build a larger fund for their post-employment years.

Which is more suitable for you?

If you are a salaried employee you might already be contributing to the EPF, however, those who are looking at increasing their retirement savings can contribute more through the VPF scheme or choose PPF separately. The decision depends on the individual’s investment and return expectations. The rate of return for VPF is 8.5 per cent and for PPF its 7.1 per cent.