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Difference between PPF and VPF

Updated On Mar 08, 2022

Public Provident Fund (PPF) and Voluntary Provident Fund (VPF) are two types of retirement funds. Both are government-sponsored financial vehicles designed to assist you in saving for retirement. You can be assured of a return on your investment if you invest in these programmes. It's crucial to understand how these investment schemes work before you invest in them.

Distinction Between PPF and VPF

There are a few distinctions between a PPF and a VPF account. The following are the main differences between the two accounts:

  1. A VPF account is only for salaried employees, whereas a PPF account can be opened by self-employed people and those working in unorganized industries.

  2. The interest rate on a VPF account is the same as the interest rate on an EPF account, which is 8.5 percent. A PPF account, on the other hand, pays 7.1 percent on your savings.

  3. PPF earnings are tax-free. Contributions to a VPF account, on the other hand, are eligible for a tax deduction under Section 80C of the Income Tax Act of 1961 in India.

  4. The money deposited in a PPF account cannot be withdrawn until the account reaches maturity. A PPF account has a 15-year repayment period. Employers, on the other hand, can take money out of their VPF accounts as needed to pay their financial obligations. If an employee withdraws money from a VPF account before it has been open for five years, the money will be taxed.

How Does a PPF Account Operate?

It's an investment plan aimed mostly at self-employed people and workers in the unorganized sector, with the goal of providing them with economic stability in retirement. It is a fixed-income security scheme that allows you to invest a minimum of Rs. 500 and a maximum of Rs. 1,50,000. Investing in a PPF account would provide you with guaranteed and tax-free returns.

Benefits of a PPF Account

  1. The interest on your PPF account is compounded once a year.

  2. The PPF has a 15-year lock-in period. Because of the lock-in period, it is a fantastic way to save money.

  3. A tax deduction of up to Rs. 1.5 lakh is available when you invest in a PPF account.

  4. Only after the 6th financial year has ended it is possible to make a partial withdrawal.

What is a VPF Account?

Apart from the statutory withdrawal of 12% of basic pay, the Voluntary Provident Fund account is another investing option that allows a salaried worker to save more for retirement. Only salaried individuals have access to Voluntary Provident Funds. Employers, on the other hand, cannot compel employees to contribute to the VPF. It is a decision made voluntarily by an employee.

Benefits of a VPF account

  1. The VPF account earns the same interest as the EPF account.

  2. The EPF account will be credited with the interest earned on the VPF account.

  3. VPF account holders have the option of withdrawing money in installments.

  4. Under some circumstances, a loan against the deposit is also conceivable.

  5. Tax exemptions apply to withdrawals from the VPF account after the 5-year period has passed.

Where to Invest?

You can choose where to put your money based on your qualifications and needs. If you are a salaried individual, you are only then entitled to open a VPF account. For high-income salaried workers, a VPF account is an excellent investment alternative. Non-salaried people, on the other hand, have no choice but to put money into a PPF account.

Take Away

A PPF account allows a person to set aside a percentage of his or her annual salary in order to build a retirement fund. VPF, or Voluntary Provident Fund, is a form of savings account that allows employees to save money in addition to the mandatory deduction of 12 percent of their basic pay. It also refers to the extended retirement-cum savings plan, under which an employee voluntarily pays a portion of his or her wages to the EPF account. It's a good idea to look into the benefits, features, drawbacks, maturity period, and other factors of both VPF and PPF before making a decision.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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