EPF vs PPF vs VPF — what's the most suitable scheme for you

EPF

Companies with more than 20 employees have to mandatorily comply with Employee Provident Fund (EPF) schemes of the government. Under the scheme, an employee is required is contribute a part of the monthly salary (generally 12 percent of the basic income + Dearness Allowance) into the EPF investment account. The same amount is contributed by the employer.

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The scheme was created with the hope to providing financial security and stability in the future to all employees. The saved amount earns interest as fixed by the Employees' Provident Fund Organisation (EPFO) and is also eligible for tax deduction.

PPF

PPF or Public Provident Fund is a government-guaranteed scheme that offers fixed return and provides tax benefits. Salaried and non-salaried investors can opt for a PPF account. There is no contribution made by the employer to the account. The interest earned on the PPF scheme is compounded, which means the investor can earn interest from the money invested as well as the interest earned. The scheme stretches for a period of 15 years.

VPF

VPF or Voluntary Provident Fund is a voluntary scheme. Those who opt for this can contribute to their PF account over the 12 percent mandated under the EPF guideline. Employees can contribute any percentage of their salary to the Provident Fund account. However, unlike in case of the EPF, the employer is not obligated to contribute any amount towards VPF. The amount is credited to the EPF account and contributors earn interest similar to EPF. There is no separate account for VPF.

Which one should you pick?

Most salaried employees already contribute to the EPF scheme. However, those who are looking at increasing their retirement portfolio can contribute more through the VPF scheme or choose to invest in PPF separately.

The decision to choose between PPF and VPF depends on the individual’s investment horizon and return expectations. At present, the rate of return for VPF is 8.5 percent, while it is 7.1 percent for PPF.

As VPF has a higher interest rate, contributing to this scheme can build a sizeable retirement fund at a faster rate.

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However, if the financial goal of the investor is within 15 years, such as child’s higher education or marriage, PPF is a better tool of investment.

Those who earn higher income can opt for both VPF and PPF to enjoy tax-free interest.

Self-employed individuals can opt for PPF, which is an efficient investment tool for long-term wealth creation and tax-saving.