Investments are essential for wealth creation and securing your financial future. There are numerous investment avenues to choose from, some with low risk and some with high. If you are looking for a low-risk option, the Voluntary Provident Fund or the Public Provident Fund are among some of the preferred options.
But choosing between PPF vs VPF can be overwhelming. However, one way to understand which is better is to know what makes them different from each other.
Read on to know the difference between VPF and PPF to help you choose the right instrument.
Particulars |
VPF |
PPF |
Eligibility |
Must be -
|
Must be -
|
Interest Rate |
8.15% p.a. |
7.10% p.a. |
Maturity Period |
Until retirement |
15 years |
Taxability |
Up to ₹1.5 Lakh |
Up to ₹1.5 Lakh |
Withdrawal |
Allowed |
Allowed only after 5 years |
Contribution |
To be decided by the employee |
₹500 to ₹1.5 Lakhs per annum |
Comparing VPF and PPF is the easiest way to understand which option is best for you. Here are some differences between VPF and PPF that can assist you in making the right decision.
For the voluntary provident fund, you must be a salaried employee of a company. Participation in VPF is voluntary, which means you can choose to make contributions towards VPF for additional benefits.
To open a public provident fund account, you need to be an Indian resident. This means that a non-resident Indian is not allowed to open a PPF account. Along with that, Hindu undivided families are also not allowed to open a PPF account.
The government determines the rate of interest for a voluntary provident fund. The interest rate of a voluntary provident fund is close to the interest rate of an EPF (Employee Provident Fund) since a voluntary provident fund is an extension of the EPF scheme.
The government also determines the interest rate of public provident funds. Currently, the VPF interest rate stands at 8.15% p.a., while it is 7.10% p.a. for PPF.
The maturity period for a voluntary provident fund is generally until you retire from the organisation or till you resign. However, you can continue our VPF account with your new employer.
In a public provident fund (PPF), the maximum duration is 15 years. After that, you also have the option of extending the maturity of your scheme by another 5 years.
You can get tax deductions for the contributions made towards the voluntary provident fund according to the Income Tax Act. These deductions can be claimed up to a specific limit. Remember that the returns earned through your VPF account are taxable if it exceeds a specific limit.
Similarly, you can also get tax deductions for the contributions you make towards the public provident fund according to the Income Tax Act. However, under both schemes, you can avail tax benefits of up to ₹1.5 Lakhs.
For a voluntary provident fund, you can choose any amount you wish to invest based on your future goals. This simply means you can even deposit 100% of your salary in a VPF account. But remember to assess your finances thoroughly before planning a contribution amount to avoid unnecessary financial burdens.
The contribution towards the PPF can be started from as low as ₹500 annually. The maximum limit for PPF contributions, however, is ₹1.5 Lakhs annually.
You can prematurely withdraw the investments made towards your voluntary provident fund account to cover any unexpected financial obligations.
A public provident fund allows you to prematurely withdraw the investments only after 5 years of opening the account. You can withdraw the funds to cover your child’s academic expenses or your medical bills.
A public provident fund (PPF) is a government-backed investment scheme that offers you attractive interest rates and tax benefits with minimal risks. A PPF allows you to invest a specified amount as your contribution and build a corpus over time.
On the other hand, a voluntary provident fund (VPF) allows investment opportunities for employees to contribute an additional portion of their income towards retirement savings. As the name suggests, contribution towards this fund is voluntary.
Both offer great advantages; however, the differences between PPF and VPF can provide an edge to one avenue over the other, depending on your preferences and goals.
This information can assist you in selecting the right kind of provident fund. Both public provident funds and voluntary provident funds have distinct eligibility criteria. So, consider these with your investment goals and timeline to select the right fund option.
Yes, you can have a voluntary provident fund as well as a public provident fund.
While the PPF has an investment horizon of 15 years, the maturity period of a VPF is until retirement.
You can withdraw your voluntary provident fund (VPF) by submitting Form 31 along with supporting documents.
Yes, you have the option of updating your contribution amount towards the voluntary provident fund.