One of the most important financial goals in todays time is planning correctly for the retirement. Most individuals have one or the other savings scheme in their portfolio with long term investment goals. Public Provident Fund (PPF) and Voluntary Provident Fund (VPF) are both considered common options when it comes to long term investment schemes.
Lets have a look at the features and comparison of both these schemes.
Key Features of Public Provident Fund
Introduced in 1968, the sole aim of this scheme was to offer investors a way to save money and grow their wealth in time with high returns. Another benefit of the PPF is related to income tax returns. Any balance in PPF is not subjected to wealth and income tax. Since it is a government-backed scheme, you can be rest assured that all your money invested (principal) along with interest earned (returns) will be guaranteed and safe.
The Minimum contribution is up to 500 Rupees per year (annual) and the Maximum one can invest is up to 1.5 lakh Rupees per year (annual). This contribution limit applies to both minors and adults. You can make a maximum of 12 contributions annually. Also, you would be happy to know that investment in PPF up to 1.5 lakh Rupees per year and interest earned on it are both tax-free.
The total tenure for a PPF account is 15 years. You can invest for 15 long years. After the PPF expires, you can extend it for five years at a time.
People who work in informal sectors, those who are self-employed, homemakers and others who are not eligible for EPF can invest in PPF. PPF is not just a regular tax saving investment. It's also a long term investment that grows with time. Many investors use this as a retirement fund.
Key Features of Voluntary Provident Fund
Voluntary Provident Fund (VPF) is voluntary contribution by employees towards their provident fund account over and above the 12% contribution towards Employee Provident Fund (EPF). The employee can contribute 100% of his Basic Salary.
The rate of interest for VPF is same as that of Employee Provident Fund (EPF). However, employer is under no obligation to provide any additional amount. The same apply for the employee also as the contribution is voluntary in nature as the name suggests.
VPF account can be opened by any individual who is an employee in an eligible organization only. Voluntary Provident Fund is the extension of Employee Provident Fund. That is the reason only those salaried employees who have access to EPF can opt for VPF.
VPF is of great help for salaried people to save more towards their retirement, apart from the mandatory deduction. The fund allows partial withdrawals as loans with also the possibility of complete withdrawals. If the withdrawal happens before the 5-year minimum tenure, then tax will be applicable on the accumulated maturity amount.
The options of Partial Withdrawal is available along with the possibility of complete withdrawals. Withdrawals will be subject to tax deductions if made before 5 years.
Comparison Between the Schemes
VPF is an extension of the Employees Provident Fund (EPF). Only those salaried employees who have an active EPF account and contribute towards EPF can invest in VPF whereas PPF is available to everyone & even a minor can open a PPF account with the help of guardian.
The Current Rate of Interest for Public Provident Fund (PPF) is 7.1% and the Current Rate of Interest for Voluntary Provident Fund (VPF) is 8.5%.
Last Decade Interest Rate Comparison between PPF and VPF
Where to invest
The investment can be made on the basis of one's eligibility and requirement. The Voluntary Provident Fund can only be opened up by the salaried individuals and is considered a safe option for for salaried people to save more towards their retirement. On the other hand, non salaried individuals cannot opt for VPF account as they are not eligible for EPF account. People who work in informal sectors, those who are self-employed, homemakers and others who are not eligible for EPF can invest in PPF.
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