Employee Provident Fund (EPF) and Public Provident Fund (PPF) are two financial instruments which are used to create and build a corpus for a retirement fund.
As both serve the same purpose many individual get confused between the terms and investment avenues.
In this article, we will see how both the instruments are different while serving the same purpose.
Employee Provident Fund (EPF) is a fund which is authorized to be held by a salaried individual, while, a Public Provident Fund (PPF) can be opened by any anyone irrespective of salary income or business income.
Employee Provident Fund (EPF)
Having and contributing for EPF is mandatory for salaried people working in companies which are registered under the Employees' Provident fund Organization (EPFO). The contribution should be either 12% of their Basic + Dearness Allowance or Rs.780 towards EPF.
Also, along with individual contributing to the fund, the employer also contributes the same amount. The interest rate, for now, is 8.75 per cent.
Public Provident Fund (PPF)
PPF acts as a savings and retirement fund which can be opened in selected branches of designated nationalized banks and selected post office branches and few private banks.
A minimum deposit of Rs 500 must be made during one whole financial year. The maximum that could be deposited is Rs 150,000 in a financial year which will be eligible for tax deduction.
Any individual who is a resident of India is eligible to open an account. However, NRI and HUF are not eligible to open the same.
Here are 5 major difference between EPF and PPF
1) Lock-in period
EPF: There is no lock in period. Individuals can hold the account till the salary is being credited. The amount invested is paid at the time of retirement or resignation whichever is earlier.
PPF: The maturity of the account will be after 15 years. However, one can extend up to 5 more years.
2) Tax Implication
EPF: Withdrawal of EPF amount is subject to tax if it is withdrawn before 5 years of employment with the same employer. EPF qualifies under 80C of Income Tax act.
PPF: Investment qualifies U/s 80C. On maturity amount, there is no tax.
3) Interest rates
EPF: Interst rate is 8.75 per cent for the year 2015-16.
PPF: The interest rate, for now, is 8.7 per cent.
4) Loan Option
EPF: Individuals can apply for a loan for the only reasons provided by EPFO by disclosing suitable documents.
PPF: Individuals can apply for loans up to 50 per cent of the balance of the 4th year from 6th year onwards.
5) Withdrawal facility
EPF: An individual having an amount can withdraw amount for personal needs providing necessary documents.
PPF: Individuals cannot withdraw money till the completion of tenure.
Both the retirement investment avenues are good while EPF works best for the salaried individual as even the company pays the same amount to the retirement fund and liquidity is also high.
Business persons and nonworking individuals can look for PPF as it will help you save for your retirement as they have stringent withdrawal rules. In any case, both serve different purposes, offer different rates of interest and are different in terms of liqudity.