Which is better- PPF or VPF?

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Which is better- PPF or VPF?
Public Provident Fund (PPF) and the less popular Voluntary Provident Fund (VPF) are investment vehicles that offer high security together with stable returns. Building a retirement corpus for you, the two schemes differ in several aspects. Let us try and know the difference.

1. Eligibility criteria: Unorganized sector including non-salaried employees can open a PPF account either at bank or Post Office and realize assured high returns. While VPF scheme can be subscribed to by salaried individuals who can contribute voluntarily over the prescribed employee contribution of 12% to their EPF account.

2. Contribution: In both the schemes, the funds are contributed voluntarily, however VPF contribution is linked to the salary whereas this is not the case for a PPF account. An employee who wishes to increase his retirement savings can ask the employer to deduct a certain percentage over and above the mandated 12% of basic pay and dearness allowance that goes towards EPF account. Note: An employee can contribute upto 100% of basic pay and dearness allowance towards VPF account.

While, the employer contributes an amount equivalent to employee's contribution that forms the part of EPF, the extra amount contributed towards VPF is not matched by the employer.

In respect of the quantum of contribution that one can make in each of the scheme, PPF account comes with an upper cap of Rs.1 lakh in a year whereas there is no such limit in case of VPF contribution. Also, one can make either a lump sum investment in the PPF account or distribute the investment amount into periodic payments.

3. Returns : Currently, PPF account fetches an interest rate of 8.7%. However, as the interest rate on PPF is linked to 10-year government bond yields, it can fluctuate depending on the market. On the other hand, interest rate on VPF is not linked to G-bond yield and is the same as fetched by EPF account. For the financial year, 2013-2014, EPFO has fixed the rate at 8.75% which is only marginally higher in comparison to PPF rate.

4. Tax Benefits: Investment amount, interest earned as well as maturity proceeds from both the provident fund schemes are exempt from tax. Also, investment made in both PPF and VPF are eligible for tax deduction under section 80C.

5. Withdrawal facility: In case of the PPF account that is to be maintained for a minimum of 15 years, only partial withdrawal is allowed subject to some terms and conditions. While money from VPF account can be withdrawn in full and rather easily. Further, in case withdrawal from the VPF account is made before completing 5 years of service with the employer, the amount shall be taxed.

6. Loan facility: Loans from financial institutions can be taken against both the provident fund schemes. Nonetheless, VPF subscriber will be able to secure loan in an easy manner.

So, considering the current interest rate and relatively easier withdrawal and loan provision in case of VPF account, it scores over a PPF scheme. Nonetheless, it is to be remember that while a PPF account can be maintained by just anyone, VPF is exclusively for salaried class.


Read more about: retirement fund, vpf, ppf, epf
Story first published: Monday, February 3, 2014, 14:32 [IST]
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