Pension Plans: EPF vs PPF vs VPF - Comparison, better option, and more

Planning one’s retirement is always the talk of the town among the young and mid-senior generation. Nowadays, nobody wants to work till the age of retirement, and plan their things accordingly. And planning your retirement needs serious thought and proper research. Because you can't have enough money to take care of your basic needs after you retire!  

There is no dearth of investment options today. Mutual Funds, equity, National Pension System (NPS), Post Office schemes, LIC plans, ULIPs, Public Provident Fund (PPF), Employees' Provident Fund (EPF), Voluntary Provident Fund (VPF) and various pension plans. But the big confusion and question lie that what to choose? Obviously, you can't put your hard-earned money in all! From past experiences with our parents, it’s advised to make a diversified investment and channel your amount in the assured return tools like EPF, PPF, and VPF.  

Now, out of the three, which one to opt-out for? Which one is the better money-making provident fund investment tool and which one can give you maximise return? Let’s understand this in a better way. 

Public Provident Fund  

PPF is a savings scheme offered by the central government. It was started with the aim to provide old age income security to self-employed individuals and workers from unorganised sectors. People working in the informal sector or unorganised sector, as well as unemployed, self-employed, can invest in PPF. Similarly, taxpayers can claim tax deductions of up to Rs 1,50,000 annually by investing in PPF. The minimum investment of Rs 500 should be made in a year. One cannot invest more than Rs 1,50,000 a year. The returns offered by PPF accounts are fixed and are backed by sovereign guarantees. The rate of interest currently stands at 7.1 per cent. 

Employees' Provident Fund 

EPF is also a government-backed scheme and is a compulsory deduction for salaried employees. It is a fund to which both the employee and employer contribute 10 per cent of the employee’s basic salary each month. Earlier this percentage was 12 per cent for private organisations. The employer and employee deposit their contribution with the Employee Provident Fund Organisation (EPFO) every month. The accumulated or a part of the amount in an EPF account can be withdrawn by the employee in the event of retirement, or resignation, or in case of COVID-19 crisis. Similarly, this amount can be transferred from one company to another in case the employee changes his job. EPF account yields a return of 8.5 per cent annually 

Voluntary Provident Fund 

VPF is the extended form of EPF. Here, if an employee wants to contribute more than the minimum requirement, then he can do so under the VPF provisions. However, the employer’s contribution would still remain the same. The VPF contributions are deposited into the EPF account of the employee and earn the same rate of interest as that of the EPF contributions. There is no capping on the VPF contributions. The rate of interest currently stands at 8.5 per cent. 

Verdict: If you are an employee with a regular salary every month, then EPF or VPF is the perfect option for you. The rate of interest is also the same. But if you are self-employed and an employee in unorganised sector, then go for PPF. It is the safest bet for you!