All You Need to Know About VPF vs PPF

More and more people who are currently employed have been discussing and thinking about the significance of saving for retirement in recent years. And there are many plans that people may take into account for retirement planning in the enormous Indian financial market.

The abundance, though, can make it difficult to focus on a single plan for that aim. When choosing an investing strategy, it is crucial to weigh and understand one's financial desires against the available possibilities. To know more about the differences between VPF & PPF, read on.

What Is A VPF?

An employee freely contributes a percentage of their pay to their Provident Fund account as part of this prolonged retirement-cum savings plan. An addition to the Employees' Provident Fund is the VPF (EPF). According to EPF regulations, everybody employed by a company with more than 20 employees is mandated by law to hold an EPF account.

A mandatory 12% payment from the employee and the employer is made to the employee's EPF account each pay period. However, an employee has the option to make a voluntary provident fund contribution in addition to the minimum amount required. In that instance, the employer is not required to give any more funds above what is required. It is easy to start and run a voluntary provident fund.

What Are The Benefits Under A VPF?

Following are the benefits under a VPF -

1. The EPF scheme's interest rate is the same for the VPF account.
2. The interest from the VPF account will be added to the EPF account.
3. Owners of VPF accounts may withdraw money in instalments.
4. Under some circumstances, loans upon deposits are also an option.
5. After five years, transfers from a VPF account are tax-free.

What Are The Restrictions Under A VPF?

Following are the restrictions under a VPF -

1. Employees who are paid a salary may create a VPF account.
2. A 5-year lock-in term applies to VPF. The full amount cannot be withdrawn prematurely or before maturity.
3. If withdrawals are performed before the fifth year, they will be eligible for tax deductions.
4. There may be variations because the government announces the interest rate on VPF on a yearly basis.

What Is A PPF?

In contrast to VPF, it is a government-backed savings programme created for people from all economic sectors. A Public Provident Fund account can be opened by any Indian citizen, whether they are employed full-time, part-time, self-employed, students, or retirees.

A Public Provident Fund's activities are under the control of the Indian government. As a result, the central government also controls the PPF interest rate. Likewise, contributing the same amount to PPF subscribers. India's government updates each quarter's PPF interest rate is dependent on current borrowing costs on government bonds.

What Are The Benefits Under A PPF?

Following are the benefits under a PPF -

1. The minimum and maximum deposits into a PPF account are 500 and 1.5 lakh respectively.
2. The PPF lock-in term is 15 years, and interest on the remaining amount is compounded annually. It's a wonderful choice for money-saving because of the lock-in term.
3. Up to Rs. 1.5 lakh in tax deductions are offered through PPF accounts.
4. When the sixth fiscal year has ended, only then is a partial withdrawal permitted.
5. PPF tenure may be extended in 5-year blocks.
6. The PPF fund is a source of loans.

What Are The Restrictions Under A PPF?

Following are the restrictions under a PPF -

1. Due to the 15-year lock-in term of PPF accounts, it might be difficult to withdraw funds in a crisis or to fulfil financial commitments.
2. If the funds are removed prior to maturity, specific guidelines must be fulfilled.
3. Co-ownership of these accounts is not permitted.
4. PPF accounts may only accept deposits of up to Rs. 1.5 lakh. Any payment above that will be declined
5. NRIs are not permitted to open PPF accounts.
6. A PPF account cannot be closed within five years of the account's opening.
7. Only life-threatening diseases, for which accompanying paperwork is necessary, are permitted in case of closure of PPF accounts.

Endnotes

It is a good idea to learn more about the advantages, characteristics, disadvantages, maturity time, and other specifics of each choice before choosing between VPF and PPF. In addition, it's a good idea to be aware of your own requirements before choosing one.

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