EPF vs. PPF (Employee Provident Fund or Public Provident Fund)

Employee Provident Fund (EPF) and Public Provident Fund (PPF) both are long term investment schemes actively efficient after retirement. As far as tax deductions are concerned both EPF and PPF as liable to similar exemptions under Section 80C. Also, both the schemes are similar in other respects like the rate of return and risk factor. But some other factors should be kept in mind while making a choice.


EPF vs. PPF: Initial Investment

The Employee Provident Fund (EPF) is what an employer provides the employee, for annuitized returns after retirement. The initial investment value in EPF is 12% of the basic salary of the employee and 3.67% of the basic salary of the employee contributed by the employer. Apart from this, 8.33% of the employee's basic salary is also contributed by the employer and goes to EPS (Employee Pension Scheme). Thus, the initial investment value is divided between both employee and employer and the amount is a comfortable sum of money. The amount varies from person to person according to their basic salary, so there is no upper limit for investments and returns.

The Public Provident Fund is a similar scheme which provides an annuitized return after retirement. In the case of PPF, the initial investment made is subject to a maximum limit of 1.5 Lakhs annually. Any amount that exceeds this set limit is not liable for tax deductions.

Thus, in terms of flexibility in initial investment, EPF is a better scheme than PPF.

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EPF vs. PPF: Who Can Invest?

In EPF, only salaried individuals are eligible to open an account. This is because the EPF is deducted from the basic salary and is not accessible by any other means.

PPF, on the other hand, is an investment scheme that can be accessed by any citizen. It is more like a voluntary personal investment for returns post 60 years of age.

Thus in terms of accessibility, PPF is the more flexible than EPF

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EPF vs. PPF: Return Rates and Tax Benefits

Both EPF and PPF are liable to tax exemptions up to 1.5 Lakhs under the Section 80C. Moreover when a graph was charted the return rates of EPF and PPF were found to be almost same. So in these terms, both the investment schemes are equally beneficial.

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EPF vs. PPF: Withdrawal Policy/Liquidity

EPF has a very flexible withdrawal policy. In the case of emergency funds of high monetary value, the amount can be withdrawn from the EPF account without any deduction or fine. Also, there are no charges on the withdrawals made.

PPF has a maturity period of 15 years. It is also the lock-in period for PPF. No funds can be withdrawn during that period. Only after completion of 5 years, a limited withdrawal can be made with rest of the amount annuitized. Thus complete withdrawal can only be made after maturity. In a case of premature closure of a PPF account, a penalty compound interest of 1% will be deducted from the interest rates of each financial year. After the deduction, the eligible balance is paid back to the subscriber. Please note, from 2016 onwards, you are allowed to withdraw the entire amount subjected to certain conditions which I have mentioned in this article.

Thus in terms of withdrawal policy, EPF has a slight edge over PPF.

Where Should You Invest?

EPF is a better investment in terms flexibility. So if an individual has a choice to make, EPF is the better option. But of course for non-salaried individuals, PPF should be considered as it is a low-risk investment plan, with decent returns and tax benefits. Infact, both the plans are equally good if a long term scenario is considered.