Confused Between PPF And EPF? Here’s What You Should Know Before Investing

You might need heard the time period workers’ provident fund (EPF) and public provident fund (PPF) quite a few occasions. Both are the government-managed financial savings schemes for workers within the organised sector. Though each the schemes sound related and intention to create a long-term corpus fund for the buyers, there are a lot of variations between the 2. The rates of interest, tenure and tax advantages, amongst others, with respect to each the financial savings devices are totally different.

Before investing, it’s best to know the main points about EPF and PPF schemes. The EPF is open just for salaried workers within the non-public sector, whereas the PPF is open to all in each organised and unorganised sectors. You ought to select between EPF and PPF as per your long-term monetary aim, threat urge for food and objective of funding.

Employees’ Provident Fund

It is a financial savings plan created by the federal government for employees within the organised sector. The Employees’ Provident Fund Organisation (EPFO), a statutory physique established by the Employees’ Provident Fund Act of 1956, manages the fund. EPFO publicizes the rates of interest yearly. The rate of interest on the EPF account has been set at 8.10 per cent for the present fiscal yr. The EPF or PF is barely open to employees or salaried workers working within the firms or enterprise institutions registered below the EPF Act. Under the EPF Act, organisations with greater than 20 employees are mandated to register with the EPFO.

Every month, 12 per cent of the worker’s fundamental pay and dearness allowance should be contributed into the EPF account and the employer additionally shares an equal quantity. From the worker’s contribution 8.33 per cent goes in the direction of the workers’ pension scheme.

Public Provident Fund

Public provident fund (PPF) is an funding programme backed by the federal government. Any Indian citizen no matter his employment standing may be part of this fund. Anyone can put money into the PPF with a minimal of Rs 500 to a most of Rs 1.5 lakh in a monetary yr. The authorities determines the speed of curiosity each quarter. The PPF rate of interest at the moment stands at 7.1 per cent.

A PPF account may be opened at each submit workplaces and the branches of the collaborating private and non-private banks.

Comparison

• Investment quantity: In PPF a person can begin with a minimal of Rs 500 and the utmost is Rs 1,50,000 in a monetary yr. On the opposite hand for EPF, a obligatory contribution of 12 % of wage, and DA is made. It may be elevated voluntarily.
• Tenure: PPF is for 15 years and is extendable after that for a interval of 5 years. The EPF account can solely be closed after retirement or after a subscriber stays unemployed for greater than two months.
• Tax profit: For PPF investments tax profit is offered below Section 80C of the Income Tax Act. The maturity quantity can be exempted from tax. The contribution to EPF attracts tax profit whereas withdrawal from EPF account earlier than completion of 5 years of employment shall be taxable. The maturity quantity after retirement is tax-free.

Drawbacks of PPF

• Partial withdrawal from PPF just isn’t permitted till 5 years have handed for the reason that opening of the account. Even for those who want cash for an emergency or stay unemployed, you can’t withdraw from the PPF.
• Considering the 15-year maturity interval, PPF comparatively gives decrease rate of interest in comparison with different financial savings choices like Mutual funds or FDs over the identical length.

Drawbacks of EPF

• Only salaried workers of the organisations registered with the EPFO are eligible to enroll below the scheme. Individuals who’re self-employed or retired aren’t eligible.
• The EPF contribution is inflexible and set at 12% of the worker’s fundamental pay and DA matched by the employer with an equal share. You could contribute extra by means of VPF, however that may’t be lower than the EPF share.

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