Public Provident Fund (PPF) or Voluntary Provident Fund (VPF) – Which should you opt for?
These days, people are more heedful of their investments. That’s why they prudently invest their hard-earned money in various schemes so that they can be benefitted at the time of requirements. Nowadays, the markets are thronged with various investment options including VPF, PPF, ULIPs, mutual funds, and many more. It has become a daunting task for individuals to choose the right investment options for them. Voluntary provident fund (VVF) and Public Provident fund (PPF) are the two most popular investment options that are ruling in the market. Though both offer lucrative returns, their features are different.
Let’s take a look at which one you should pick up and why.
In This Article:
What is a VPF Account?
VPF full form is the Voluntary Provident fund. VPF is basically the extended form of Employees Provident Fund (EPF) Only salaried people who have EPF accounts and regularly contribute towards EPF can keep their money in VPF accounts.
What is a PPF account?
PPF full form is Public Provident Fund and anyone can invest in this type of account. A minor applicant can also apply for the PPF scheme along with his/her guardian. People have been investing in PPF accounts due to various lucrative PPF benefits and a higher PPF interest rate as compared to saving bank account’s interest rates.
Rate of Interest
At present, the PPF interest rate for 2021 is 7.1% (for the quarter ending March 2021). VPF interest rate has not yet been declared for 2020-2021. VPF interest rate was 8.5 % for the financial year 2019-2020. You will get more interest rate if you choose VPF but before you do so check the VPF calculator with the help of a financial consultant. PPF account interest rate is lower as compared to VPF.
For investing in VPF, you are eligible for a tax deduction under section 80C of the Income Tax Act 1961. With a VPF account, you can save up to Rs. 1.5 lakh in a financial year. Does that mean PPF interest is taxable? No, you are eligible for this deduction too if you have invested in PPF.
But the tax treatments of returns earned on these two products are different. For PPF, the entire return earned is relieved from income tax; but you can’t invest more than Rs 1.5 lakh each year. The budget that was declared in 2021 restricted the exemption on returns earned on VPF. According to the budget, if your investment for VPF and EPF together is above Rs 2.5 lakh in a financial year, your returns earned above Rs 2.5 lakh will not be excluded from tax.
Minimum and Maximum Investment
Once you open a PPF account after filling in all PPF account details, you need to invest a minimum of Rs 500 in each financial year. Your maximum investment amount could be Rs 1.5 lakh in a year. As per PPF account rules, your PPF account will be inactive if you don’t deposit Rs. 500 in a year.
But there is no such restriction for minimum or maximum investment with a VPF account. You must remember that your maximum investment in EPF and VPF together is restricted to 100% of your basic salary and dearness allowance.
Your investment period is 15 years for PPF. You can extend it for five years any number of times. Since VPF is savings for retirement, hence all withdrawal rules of EPF will be applicable for VPF also.
After superannuation, you can withdraw your entire VPF funds. You can claim your EPF amount after your retirement from service (reaching 55 years of age).
Withdrawal and Loan Options
Let’s take a look at PPF withdrawal rules. PPF permits you only a partial withdrawal option after five years of your investment. You are also eligible for a loan against your PPF balance between 3-6 years from your investment.
If you are unemployed for more than two months, you can withdraw your entire VPF amount. You can also partially withdraw your funds for specific purposes including healthcare emergencies, purchase of a new house, renovation of your old house, loan repayment, wedding, and so on.
How to Open an Account?
To enjoy your PPF account benefits, you must know how you can open a PPF account. You need to visit designated branches of the post offices or banks to open your PPF account. Banks are giving online facilities to open a PPF account to their customers. To open a VPF account, you need to contact the HR department of your company.
Where should you Invest?
Always go for an investment that offers the highest returns at minimal risks. Both VPF and PPF offer you guaranteed investment. Thus, you can choose any of them. Both are considered to be safe fixed-income investment options. Based on your individual goals and time horizon, you can choose the most suitable one.
VPF and PPF are ideal for the Long-Term Goal
If your prime objective is to save money for your retired life, then VPF could be the best option for you. But if you want to invest to fulfill your various long-term goals like your children’s higher education or marriage that may come within 15-20 years, then PPF will be more suitable for you. But if you are a self-employed person, then your only choice is PPF.
If you are earning a hefty amount annually and looking for higher investment options with tax-free returns, then you can choose both VPF and PPF together.
9 Major Difference Between Public Provident Fund (PPF) or Voluntary Provident Fund (VPF) Scheme
Rate of interest
|8.5% (2019-2020)||7.1 % (quarter ending 2021)|
|Safety||Supported by the government||
Supported by the government
|Till superannuation at 58 years||15 years|
|No limit||Rs. 500 in a financial year|
|Maximum investment||Up to 100% of basic salary||
Rs. 1.5 lakh in a year
|Under section 80C||Under section 80 C|
|Premature withdrawals||Yes, for specific purposes like EPF||
After 5 years from the date of investment
For a block of 5 years
The Bottom Line
Both EPF and PPF are good investment options as they are backed by the government. Based on your eligibility and requirement, you need to take the final call where to invest for a better future. Make sure you go through PPF account rules if you wish to open a PPF account and VPF Interest Rate before proceeding with a VPF account.