EPF vs PPF – Which One is Better to Invest?

Life after retirement can be easy and enjoyable! You must be financially self-sufficient to do so. Financial planning should include retirement planning as well. Government-sponsored plans include the Public Provident Fund and the Employees Provident Fund. Which is the greatest approach for accumulating a retirement fund?

The main advantage of investing in these plans is that you can begin with a small sum of money and end up with a sizable sum of money when you retire. It is critical that you understand EPF and PPF before making an investment.


What is an EPF account?

EPF is a retirement savings plan to which both the company and the employee participate. Every month, you and your employer each contribute 12% of your base wage. The Employee Provident Fund Institution, which is a government organisation, is in charge of this system. Both the employee and the employer contribute a total of 24 percent of your basic salary to the EPF account, according to EPFO rules. When it comes to retirement or changing jobs, the money saved in the EPF account can be released. When an employee moves jobs, the EPF account can be moved from one company to another.

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What is PPF account?

A PPF account is a type of investment that is specifically designed to offer income security in retirement. It is a savings and investment scheme established by the Indian government. A person can start investing in this scheme with a minimum of Rs. 500 and a maximum of Rs. 1,50,000 and earn significant tax-free returns. The scheme is exclusively available to Indian citizens.


EPF vs PPF:

The proposed reduction in the PF interest rate (PF INTEREST RATES) paid on Employees’ Provident Fund (EPF) deposits to 8.1 percent is a four-decade low. The recommendation made by the Central Board of Trustees of the Employees’ Provident Fund Organization (EPFO) has been backed by Finance Minister Nirmala Sitharaman, who claims that the rate is decided by today’s circumstances, where interest rates on other small savings products are much lower.

The EPFO Ministry of Finance is in charge of approving the Central Board’s recommendations.


EPF Interest Rate

According to the Finance Minister, the EPFO has a central board that determines on the rate to be paid… They haven’t modified it in a very long time. It has now been updated to 8.1 percent. Sitharaman went on to say that the EPFO Central Board, which is made up of a diverse group of people, made the decision.

The EPFO voted earlier this month to cut the interest rate for the financial year 2021-22 to 8.1 percent, a four-decade low. This rate was 8.5 percent for the fiscal year 2020-21.


Types of Provident Fund

The many forms of Provident Funds accessible in India are shown below.

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Employee Provident Fund: Under the Employee Provident Fund plan, the employee contributes to the funds on a monthly basis (a fraction of their wage).

After that, the contributions of a group of people are pooled and invested in a trust. The money in the fund is later returned to the retiree, or they might choose to withdraw it after a specified length of time has passed.

Statutory Provident Fund: Employees of the government, educational institutions, and universities are covered by the Statutory Provident Fund.

Public Provident Fund: The Public Provident Fund is a type of provident fund to which self-employed people and children can contribute. Unlike other funds, this one does not require a salaried employee.

Unrecognized Provident Fund: This plan is set up between the employer and the employee, but it has not been approved by the Commissioner of the Internal Revenue Service.


Interest rates of other schemes including PPF

Sukanya Samriddhi Yojana offers 7.6%, Senior Citizens Savings Scheme (7.4%), and PPF (7.1%), whereas SBI offers 5-10 years, according to Finance Minister Nirmala Sitharaman, citing the current interest rates of other schemes. Fixed deposit accounts earn 5.50 percent interest.

With all of this, the EPFO has decided to award it an interest rate of 8.1 percent,” he stated. EPFO rates have not been decreased in 40 years, according to the Finance Minister.

These are the realities of today, which keep us grounded in the wake of EPFO’s Central Board decisions. It has yet to be approved by the finance ministry, but the fact is that these rates are still in effect today, and EPFO is still greater than the rest.

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(EPF vs PPF) Minimum investment | Lock in Period

PPF accounts can be started with a minimum deposit of Rs 500. At the same time, EPF provides 24% of the basic wage, with the firm contributing 12% and the person contributing 12 percent. When you retire or leave the company, you can take money out of your EPF account (resignation). At the same time, the Public Provident Fund has a 15-year lock-in term. This can be done in 5-year increments.


Credit Facility, Tax Liability & Tax Exemption

You can take a loan against PPF account after 3 years. At the same time, loan can be taken against EPF account for special circumstances like medical emergency, home, child education.

Withdrawals from the PPF are tax-free, however withdrawals from the EPF before the fifth year may be taxed. At the same time, under section 80C of the Income Tax Act, tax exemption is granted on PPF and Employees Provident Fund investments up to Rs 1.50 lakh.

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