Confused Between PPF And EPF? Here's What You Should Know Before Investing
Confused Between PPF And EPF? Here's What You Should Know Before Investing
The EPF is open only for salaried employees in the private sector while the PPF is open to all in both organised and unorganised sectors

You might have heard the term employees’ provident fund (EPF) and public provident fund (PPF) numerous times. Both are the government-managed savings schemes for employees in the organised sector. Though both the schemes sound similar and aim to create a long-term corpus fund for the investors, there are many differences between the two. The interest rates, tenure and tax benefits, among others, with respect to both the savings instruments are different.

Before investing, you should know the details about EPF and PPF schemes. The EPF is open only for salaried employees in the private sector, while the PPF is open to all in both organised and unorganised sectors. You should choose between EPF and PPF as per your long-term financial goal, risk appetite and purpose of investment.

Employees’ Provident Fund

It is a savings plan created by the government for workers in the organised sector. The Employees’ Provident Fund Organisation (EPFO), a statutory body established by the Employees’ Provident Fund Act of 1956, manages the fund. EPFO announces the interest rates every year. The interest rate on the EPF account has been set at 8.10 per cent for the current fiscal year. The EPF or PF is only open to workers or salaried employees working in the companies or business establishments registered under the EPF Act. Under the EPF Act, organisations with more than 20 workers are mandated to register with the EPFO.

Every month, 12 per cent of the employee’s basic pay and dearness allowance must be contributed into the EPF account and the employer also shares an equal amount. From the employee’s contribution 8.33 per cent goes towards the employees’ pension scheme.

Public Provident Fund

Public provident fund (PPF) is an investment programme backed by the government. Any Indian citizen irrespective of his employment status can be a part of this fund. Anyone can invest in the PPF with a minimum of Rs 500 to a maximum of Rs 1.5 lakh in a financial year. The government determines the rate of interest every quarter. The PPF interest rate currently stands at 7.1 per cent.

A PPF account can be opened at both post offices and the branches of the participating public and private banks.

Comparison

  • Investment amount: In PPF an individual can start with a minimum of Rs 500 and the maximum is Rs 1,50,000 in a financial year. On the other hand for EPF, a compulsory contribution of 12 % of salary, and DA is made. It can be increased voluntarily.
  • Tenure: PPF is for 15 years and is extendable after that for a period of 5 years. The EPF account can only be closed after retirement or after a subscriber remains unemployed for more than two months.
  • Tax benefit: For PPF investments tax benefit is available under Section 80C of the Income Tax Act. The maturity amount is also exempted from tax. The contribution to EPF attracts tax benefit while withdrawal from EPF account before completion of five years of employment will be taxable. The maturity amount after retirement is tax-free.

Drawbacks of PPF

  • Partial withdrawal from PPF is not permitted until five years have passed since the opening of the account. Even if you need money for an emergency or remain unemployed, you cannot withdraw from the PPF.
  • Considering the 15-year maturity period, PPF comparatively offers lower interest rate compared to other savings options like Mutual funds or FDs over the same duration.

Drawbacks of EPF

  • Only salaried employees of the organisations registered with the EPFO are eligible to enroll under the scheme. Individuals who are self-employed or retired are not eligible.
  • The EPF contribution is rigid and set at 12% of the employee’s basic pay and DA matched by the employer with an equal share. You may contribute more through VPF, but that can’t be less than the EPF share.

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