The main beauty of EPF and PPF lies in their steady, secure and slow, nature. You keep investing very small amounts and end up with a big corpus by the time you retire. It is very important for working individuals to take advantage of these instruments. However, many people are often confused between the two options.
What are PPF and EPF?
PPF is a statutory scheme by the central government. It started with the objective to provide old age income security to self-employed individuals from unorganised sectors.
EPF, on the other hand, is a retirement benefit that is applicable only for salaried employees. It is a fund to which both the employer and employee contribute 12 percent of the basic salary every month. This percentage is pre-set by the government.
The factors based on which we will be able to distinguish the two investment instruments further are:
Return on investment
Rate of the return of PPF accounts is 8.7 percent per annum and Rate of the return of EPF accounts is 8.5 percent annually.
PPF withdrawal can be done after 15 years of maturity. It can be extended in blocks of 5 years.
But in case of EPF withdrawal, the amount is paid at the time of retirement or resignation. In case of a job change, the amount can be transferred from the old company to the new one.
Loans can be taken on both, but the conditions will vary. For EPF, one can withdraw money for personal use by submitting suitable documents, but in case of PPF, one can avail a loan from sixth year onwards, of up to 50 percent of balance in the 4 year.
As PPF qualifies for tax exemption under Section 80C, there is no tax applicable on the maturity amount in this option.
But In case of EPF, investment qualifies for deduction under Section 80C. EPF amount withdrawal is a subject to tax if it is carried out within 5 years of employment with the same employer.
EPF is slightly more beneficial than PPF because of a few reasons. Firstly, employer contributes to fund in case of EPF, in PPF however there is no such contribution. Secondly, an EPF holder can withdraw the amount for personal needs anytime by providing necessary documents. The salaried individuals, who have the option of contributing in EPF schemes, should ensure their contribution to the fullest extent. PPF is a good alternative for people who are self-employed or are from unorganised sectors since EPF is not available to them.