VPF vs PPF: Which will give more return on Rs 1.50 lakh/year investment for 15 years?
PPF vs VPF: One can contribute up to a maximum of 12 per cent of their basic salary and dearness allowance (DA) in EPF. If one wants to contribute beyond that limit, it can be done through Voluntary Provident Fund (VPF). PPF, on the other hand, has a lock-in period of 15 years, which can be extended for further blocks of five years.
PPF vs VPF: When we talk about fixed interest retirement investment options, Employees' Provident Fund (EPF) and Public Provident Fund (PPF) emerge as two popular choices opted for by crores of Indians. EPF is a retirement scheme where one can make monthly contributions up to the retirement age or resignation, whichever is early. It offers 8.25 per cent annual compound interest. Both the employee and the employer contribute to the EPF account of the former. But there is a limit to contribution. One can contribute up to a maximum of 12 per cent of their basic salary and dearness allowance (DA). If one wants to contribute beyond that limit, it can be done through Voluntary Provident Fund (VPF). PPF, on the other hand, has a lock-in period of 15 years, which can be extended for further blocks of five years for unlimited time. In this write-up, know the difference between PPF and VPF and what Rs 1.50 lakh investment in each will give you in 15 years.
Photos: Unsplash/Pixabay
What is VPF?
It's a voluntary contribution beyond the 12 per cent limit of EPF. The interest rate in VPF remains the same as in EPF; the only difference is if that EPF falls in the Exempt-Exempt-Exempt (EEE) category, where deposits up to Rs 1.50 lakh in a financial year, interest earned, and the maturity amount are tax free. However, the maturity amount that you get over EPF contributions is not tax-free in VPF.
What is VPF?
In case your EPF contributions along with other Section 80C investments are less than Rs 1.50 lakh in a financial year, deposits in VPF will also get tax benefits. Beyond that, there is no relaxation on contribution. VPF helps as it can increase your maturity amount to a large extent if you contribute a substantial amount over the EPF amount every month.
What is PPF?
It is a guaranteed return, small savings scheme used by many investors to generate the retirement corpus. The scheme provides 7.1 per cent compound interest rate. PPF also enjoys the status of the EEE category. The minimum contribution in a financial year in PPF is Rs 500, while the maximum is Rs 1.50 lakh. One can deposit the amount in monthly instalments or one time.
What is PPF?
Interest is calculated for the calendar month on the lowest balance in the account between the close of the fifth day and the end of the month. It is credited to the account at the end of each financial year.
Once the account reaches the maturity period of 15 years, a PPF subscriber can extend it for unlimited further blocks of five years each.
VPS vs PPF: Which gives more on Rs 1.50 lakh/year deposit for 15 year
Since you make a monthly contribution in VPF, a Rs 1.50 lakh yearly contribution means Rs 12,500 a month. At the rate of 8.25 per cent interest rate, the invested amount will be Rs 22,50,000, interest will be Rs 22,45,556 and the maturity amount will be Rs 44,95,556.
VPS vs PPF: Which gives more on Rs 1.50 lakh/year deposit for 15 year
In PPF, at a compound interest rate of 7.1 per cent, the total contribution in the 15-year period will be Rs 22,50,000, the interest amount will be Rs 18,18,209, and the maturity amount will be Rs 40,68,209.