EPF vs PPF: Which is better and where should you invest your money?

1. WHAT IS EPF?

  • Employees’ Provident Fund (EPF) is a retirement benefits scheme wherein a portion of an employee’s salary is deducted each month to help them accumulate a sum of money for their retired life. The employer too contributes an equal amount to the PF account of the employee.
  • It is managed by Employees Provident Fund Organization (EPFO) under the act of Employees Provident Fund and Miscellaneous Act, 1952.
  • The interest rates on EPF are reviewed every year by EPFO after consultation with the Ministry of Finance.
  • The amount and the interest earned on EPF is completely tax free unless the amount is withdrawn before the completion of a period of 5 years.

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2. WHAT IS PPF?

  • Public Provident Fund (PPF) is a popular government savings-cum-tax-saving instrument open to all – self-employed individuals, unemployed individuals and even retired ones.
  • It is managed under the purview of Public Provident Fund Act, 1968.
  • The interest rates on PPF are declared by the government on a quarterly basis. The interest earned by an individual is calculated on the balance of the PPF account.
  • The main purpose of PPF is to help the working or non-working individuals save and invest as per their convenience.
  • Contributions of up to ₹ 1 lakh in the PPF can even help the contributor in tax deduction under Section 80C. Also, the interest gained on the account is exempted from tax.

3. COMPARISON OF THE INSTRUMENTS

PARAMETER

                       EPF

PPF

Investor

Salaried employees of a company registered under the EPF Act

Any Indian (except NRI)

Contributor

Employer and employee

Self

Minimum investment

Compulsorily 12% of the salary and Dearness Allowance

₹ 500 a year

Maximum investment

Can be increased voluntarily

₹ 1,50,000 a year

Lock-in period

Till retirement

15 years, extendable indefinitely for a block of 5 years

Rate of interest

8.5% p.a. (2019 to 2020)

7.1% p.a. (Oct’20 to Dec’20)

Tax Deduction

Up to ₹ 1,50,000 a year

Up to ₹ 1,50,000 a year

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4. WHICH ONE IS BETTER?

  • Both EPF and PPF have their own benefits and drawbacks. If we talk about safety both of them are safe as they are backed by the Indian government. However, in the case of EPF, 85% of the collected money is invested in government bonds but the remaining 15% is invested in equities that make EPF a little riskier than the PPF.
  • Although if the concern is about withdrawal facility, the contributor in EPF is eligible for a withdrawal after a certain period of service without needing to be paid back for the purposes like medical emergency, marriage, purchase of a property, etc. On the other side, contributor is eligible for a loan against PPF from 3rd year till the end of 5th year up to an amount of 25% of the investments made at the end of the preceding year.
  • Also, EPF is only available for the organized sector and hence best suited for a salaried individual whereas PPF is a better choice for self-employed and people working in an unorganized sector.

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