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Which Provident Fund is beneficial?

Wed, Jun 08, 2016, 08:00 PM
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All provident funds are helpful to save some hard-earned money and for a secure future. All these schemes have almost same benefits and level of security. In this article, we wish to provide you with the differences among the three schemes.      

Public Provident Fund (PPF)

Any Indian citizen can join the scheme and save money here.The duration of the scheme is 15 years and it can be extended by another five years. During the extension period, there is no need of depositing the money. One can get an interest on the money deposited till then. Since April 1 this year, the interest rate is 8.1 percent. In a year, one can deposit a minimum amount of Rs.500 and a maximum amount of Rs.1.5 lakhs. Till the end of the duration, one can't close down the account. But, one can take back some amount at the completion of sixth year. However, one can't withdraw the money from the then existing PPF balance. One can take back only half of the money from the balance that is existing at the end of the fourth year. After that, one can withdraw some amount only once in a year. There is a tax exemption for the investments and the returns got after the duration. Both EPF and VPF are only for those persons in the organised sector. But PPF is available to every person.

Benefits with PPF

One can get more amount if the PPF account is opened in the early days of joining in a job. Even if the family needs are increased, one has to wait till sixth year. So, opening the account in the early days is beneficial. One can get maximum fund if they can deposit some amount every month without fail. So, one has to divert the maximum possible amount to the PPF. Only interest is available for the deposits made before 5th of every month. Loans are available only with less interest on PPF. Interest on a loan is only 2 percent more than the interest on PPF. So, taking a loan on PPF is more beneficial than on a personal loan.

Employees Provident Fund (EPF)

This scheme is being run by the Central government for those persons who are working in the organised sector. It is intended for providing fund for these employees for their future use. At present, the rate of interest is 8.8 percent in this scheme. Twelve percent of the total amount of Basic pay and DA is cut every month from the salary and deposited into the EPF account. This account is valid till the retirement of the employee or till the employee leaves the company. The EPF diverts some percentage of this company share to future fund and some percentage to pension fund. With this, those persons, who took retirement after a service of ten years, can get pension every month. If any employee changes his company, he can continue his EPF account with the same number in the new company. If any person is jobless for two months after leaving a company, he can close his EPF account and get back entire money in the account. There is a tax exemption for the investments here and on the returns too. However if a person worked in a company for less than five years and left it and wants to get back the amount in his account, then he has to pay the tax.

Voluntary Provident Fund (VPF)

This is a chance that is available to EPF subscribers only. VPF is not a separate scheme. Through this scheme, an EPF subscriber can save some additional amount from his salary. In this account, an employee can save the amount equal to the combined amount of basic pay and DA. EPF interest rate is applicable on the investments made here. All the tax exemptions and rules are same for both EPF and VPF. All the investments in VPF are deposited in EPF account only.

It is better for all salaried persons to deposit in VPF only than in PPF. This is because VPF has more interest rate comparatively. But all persons have to remember one important thing here. Recently, the Central government took the decision of imposing a tax on 60 percent of total amount that is withdrawn at the time of retirement from his EPF account. However, the government immediately reversed the decision due to public anger. If the same kind of decisions are taken by the government in future, tax may be levied on the investments in VPF.    

Employees who want to save some amount in VPF every month have to inform the same to their HR department. If a person is jobless, he can withdraw the entire amount from both EPF and VPF accounts. Similarly, some amount can be withdrawn at the time of marriage, buying home and for hospital expenses. Loan facility is also available for special needs. The PPF and VPF are beneficial as they have high interest rate. But both these schemes are restricted to employees only. The only option for self-employed persons, occupational workers and workers in the companies which are not listed in labor department is PPF.


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