April 26, 2023

EPF Vs PPF - Difference, & Which is Better to Invest

Saving money is an essential aspect of financial planning. However, with various saving schemes available in the market, choosing the right one can be challenging. Two popular saving schemes are EPF (Employee Provident Fund) and PPF (Public Provident Fund). This article discusses the difference between EPF and PPF and which is better for your financial goals.
EPF and PPF are saving schemes with unique features and benefits. While EPF is suitable for salaried employees looking for long-term retirement planning and higher returns, PPF is an option for all Indian citizens with short-term financial goals who want to be disciplined about savings. Therefore, understanding the differences between EPF and PPF and evaluating your financial goals before choosing a suitable scheme is essential.

What is EPF?

EPF (Employee Provident Fund) is a retirement benefits scheme available to all salaried employees in India. Under this scheme, the employee contributes 12% earnings and dearness allowance towards the fund. The employer also contributes an equal amount towards the fund. The accumulated amount is payable to the employee at retirement, resignation, or death.

What is PPF?PPF (Public Provident Fund) is a long-term savings scheme offered by the Government of India. It is open to all Indian citizens and provides tax benefits under Section 80C of the IT Act. The scheme has a maturity period of 15 years, and the government decides the interest rate every quarter.

What is the difference between EPF and PPF?

Eligibility

EPF is available only to salaried workers, while PPF is available to every Indian citizen. However, an individual can only open one account in their name.

Investment

Under EPF, the employer and worker contribute towards the fund. In contrast, PPF is solely funded by the account holder.

Interest rates

The interest rate on EPF is fixed by the government every year and is currently at 8.5%. On the other hand, the government sets the interest rate on PPF every quarter, which is presently at 7.1%.

Tenure

EPF has no fixed tenure and is payable at the time of retirement, resignation, or death. PPF has a fixed tenure of 15 years, and the account holder can extend the term in blocks of five years.

Withdrawal

EPF allows partial withdrawals for medical emergencies, marriage, education and home loans. PPF also allows partial withdrawals after the fifth year for particular purposes.

Tax benefits

EPF and PPF provide tax benefits under Section 80C of the IT Act. However, the interest earned on EPF is taxable if the employee withdraws the amount before completing five years of continuous service.

Which is Better, EPF or PPF?

Choosing between EPF and PPF depends on your financial goals and priorities. Here are some factors to consider:

Eligibility

If you are a salaried employee, EPF is a good option, as most organisations must contribute towards the fund. However, if you aren't a salaried employee, PPF is a good option as it is open to all Indian citizens.

Tenure

If you have a long-term financial goal like retirement planning, EPF is an option as it has no fixed tenure. On the other hand, if you have a short-term financial plan, like saving for a down payment for a house or education expenses, PPF is a good option as it has a fixed tenure of 15 years.

Interest rates

If you are looking for higher returns, EPF is the better option, as the current interest rate is higher than PPF. However, it is essential to note that the interest rate on EPF is subject to change yearly, while the interest rate on PPF is changed quarterly.

Withdrawal

If you are looking for flexibility in withdrawal, EPF is better, as it allows partial withdrawals for specific purposes. PPF also allows partial withdrawals after the fifth year but has a cap on the amount that can be taken out. On the other hand, if you want to maintain the discipline of long-term savings, PPF is a better option, as the withdrawal rules are stricter.

Tax benefits

EPF and PPF provide tax benefits under Section 80C of the IT Act. However, the tax treatment of the interest earned differs for both schemes. The interest earned on EPF is taxable if the employee withdraws the amount before completing five years of continuous service. In contrast, the interest earned on PPF is tax-free.

Conclusion

The critical differences between EPF and PPF are that EPF is a retirement benefits scheme for salaried employees, while PPF is a long-term saving scheme open to all Indian citizens. EPF is funded by both the employer and employee, while the account holder solely funds PPF. EPF has no fixed tenure, while PPF has a fixed term of 15 years. EPF allows partial withdrawals for specific purposes, while PPF also allows partial withdrawals after the fifth year. Both EPF and PPF provide tax benefits under Section 80C of the IT Act, but the tax treatment of the interest earned is different.
In conclusion, evaluating your financial goals and priorities is essential before choosing a suitable saving scheme. Whether EPF or PPF, both are good options for long-term financial planning and saving.
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Disclaimer

The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.

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