PPF (Public Provident Fund) and VPF (Voluntary Provident Fund) are both government-backed savings schemes in India that offer tax benefits and guaranteed returns. However, they differ in eligibility and some key features.
PPF is open to all resident Indians, including self-employed individuals. It offers a fixed interest rate and tax-free maturity amount. VPF, on the other hand, is exclusively for salaried individuals who already contribute to the Employee Provident Fund (EPF). It allows them to voluntarily contribute extra towards their retirement savings, with the benefit of tax deductions on their contributions.
Read till the end to know the key differences between PPF and VPF and choose the best option that suits your financial situation.
The interest rate for PPF is currently 7.1% p.a. while the interest rate for VPF is currently 8.25% p.a.
Table of Contents:
Difference Between PPF & VPF
The Personal Provident Fund (PPF) and Voluntary Provident Fund (VPF) are both popular investment options in India, but they have distinct differences that an investor should understand. The table below shows the key differences between PPF and VPF.
| Feature | PPF | VPF |
|---|---|---|
| Eligibility | All resident Indians | Salaried individuals only |
| Contribution | Fixed yearly limit (₹1.5 lakh) | Up to 100% of basic salary & dearness allowance (voluntary) |
| Tax Benefit | Deductible under Section 80C | Deductible under Section 80C |
| Interest Rate | Fixed-rate declared by government (currently 7.1%) | Fixed-rate declared by government (currently 8.25%) |
| Lock-in Period | 15 years (extendable in 5-year blocks) | 5 years |
| Withdrawal | Tax-free after 15 years (limited exceptions) | Tax-free after 5 years (limited exceptions) |
| Account Management | Managed by government | Managed by Employees' Provident Fund Organization (EPFO) |
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Public Provident Fund (PPF)
The Public Provident Fund (PPF), launched in 1968 by the Indian government, is a long-term investment option for everyone. It offers guaranteed returns with a fixed interest rate set by the government. This interest is compounded annually, meaning you earn interest on your interest, further boosting your returns. To maximize your earnings, the interest is calculated on the lowest balance in your account between the 5th and the end of each month. This encourages consistent saving habits.
Highlights of Public Provident Fund (PPF)
| Features | Description |
|---|---|
| Interest Rate | 7.1% per annum. |
| Minimum Investment Amount | ₹500 |
| Maximum Investment Amount | ₹1.5 lakh per annum. |
| Tenure | 15 years |
| Risk Profile | Offers guaranteed, risk-free returns |
| Tax Benefit | Up to Rs.1.5 lakh under Section 80C |
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PPF Calculator
A PPF calculator helps you estimate the maturity amount you can expect from your Public Provident Fund (PPF) investment. It considers factors like your investment amount, frequency, interest rate, and tenure to calculate potential returns.
Voluntary Provident Fund (VPF)
The Voluntary Provident Fund (VPF) is an additional benefit for retirement savings in India. It's voluntary and allows employees to boost their retirement corpus by contributing a portion of their salary on top of the mandatory Employee Provident Fund (EPF) contribution. The contributions and earned interest have tax benefits, making it an attractive option.
Highlights of Voluntary Provident Fund (VPF):
| Feature | Description |
|---|---|
| Contribution | Voluntary (additional contributions beyond mandatory EPF) |
| Tax Benefit | Contributions qualify for deduction under Section 80C of the Income Tax Act |
| Interest Rate | Currently 8.25% p.a. |
| Lock-in Period | Minimum 5 years |
| Withdrawal | Maturity amount and interest tax-free after 5 years (with exceptions) |
| Account Type | Government-backed savings scheme |
VPF Calculator
The VPF Calculator is used to determine the maturity amount of a Voluntary Provident Fund (VPF) account. To use the calculator, you require the monthly VPF contribution made by the employee, the current annual interest rate of 8.25% applied to the VPF account, and the number of years the employee plans to invest in the VPF. With these inputs, the calculator can compute the final maturity amount that will be available to the employee at the end of the investment period.
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Check more on the Voluntary Provident Fund from the links in the table below:
Choosing the Best VPF or PPF
Choosing between PPF and VPF depends on your financial goals and risk tolerance. Here's a breakdown to help you decide:
PPF is a good fit for:
- Long-term goals: With a 15-year lock-in period, PPF encourages long-term saving habits. It's ideal for retirement planning or goals far in the future.
- Guaranteed returns: PPF offers a fixed interest rate set by the government, providing stability and predictability for your investment.
- Tax benefits: Contributions qualify for tax deduction under Section 80C, and both interest and maturity amounts are tax-free.
SVPF is a good fit for:
- Higher potential returns: Currently, VPF offers a slightly higher interest rate than PPF.
- More flexibility: VPF has a shorter lock-in period of 5 years, allowing you to access your funds sooner in case of emergencies (with exceptions).
- Salaried individuals only: VPF is linked to your employment and contributions are made from your salary.
Ultimately, consider your investment horizon, risk tolerance, and need for flexibility. If you prioritize guaranteed returns, tax benefits, and a long-term plan, PPF might be better. If you seek potentially higher returns, more flexibility, and are a salaried individual, VPF could be a good choice. You can even invest in both to diversify your portfolio and leverage the strengths of each scheme.
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Besides VPF, you can also check and invest in other saving schemes with better returns. Check the table below with links for details:
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Frequently Asked Questions
It depends on your financial goals. PPF offers guaranteed returns, tax benefits, and a longer lock-in period (good for long-term savings). VPF might have slightly higher returns, shorter lock-in (more flexibility), but is only for salaried individuals.
No, VPF contributions are tax-deductible under Section 80C, similar to PPF.
VPF might be better if you want potentially higher returns and more flexibility (shorter lock-in). However, PPF offers guaranteed returns and tax benefits that VPF can't beat for long-term goals.
The total tax benefit for all Section 80C investments is capped at Rs. 2.5 lakhs. If your VPF contribution and other investments under 80C exceed the limit, the excess amount won't be tax-deductible.
Yes, you can invest in both PPF and VPF to diversify your portfolio and benefit from their unique features.
Yes, VPF allows tax-free withdrawals after 5 years, with some exceptions (similar to PPF).
Both VPF and NPS are retirement savings schemes. VPF offers more flexibility and guaranteed returns (currently). NPS might offer potentially higher returns but has a longer lock-in period and stricter withdrawal rules.
Both the contributions made towards PPF (up to Rs. 1.5 lakh) and the interest earned, and the maturity amount are tax-free.
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