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PPF vs VPF: When it comes to tax-saving options, people have a number of schemes to invest their money, reduce taxable income and ultimately save tax. Of all the existing options, only a few fall under the EEE (Exempt-Exempt-Exempt) scheme. These options save tax not only in the beginning but also in the other stages. Let us understand here, two popular tax-saving investments Public Provident Fund (PPF) and the Voluntary Provident Fund (VPF). What is the difference between them and which option is better?
What is PPF?
PPF or Public Provident Fund is a government-backed savings scheme in India that offers tax benefits and guaranteed returns. It is a popular long-term investment option that can be used for retirement planning, children’s education and housing. It has a lock-in period of 15 years.
What is VPF?
Voluntary Provident Fund (VPF) is the contribution made by employees which is above the minimum contribution set by the Employees’ Provident Fund Organisation (EPFO). However, the employer will not contribute more than 12 per cent of the basic salary, irrespective of the amount contributed by the employee. Many employees opt for VPF as they do not have to make any other investment. This is convenient as the investment amount is deducted directly from their salary.
PPF vs VPF
PPF is available to all Indian citizens, while VPF is available only to salaried persons enrolled in EPF. PPF has a lock-in period of 15 years, while VPF is linked to employment tenure. Similarly, PPF currently offers a 7.1 per cent interest rate on investment, while VPF offers 8.25 per cent interest. Tax-saving options are available in both. You can invest up to Rs 1.5 lakh annually in PPF and partial withdrawal can be made in PPF after 7 years. On the other hand, partial withdrawal can be made in VPF in the 5th year. PPF is risk-free, while VPF is a low-risk, government-backed EPF scheme.
Which one is better?
The answer to this question is not easy. Well, if you want stability and guaranteed returns in the long term, then PPF is an excellent option. The lock-in period, though long, encourages disciplined savings and can act as a reliable fund for retirement or other long-term financial goals. If you are a salaried person and want a higher contribution, a higher rate of return than PPF, and are willing to contribute a significant portion of your salary towards retirement savings, you can consider VPF.
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