EPF Vs. PPF - Which Is Better?

Even among those as young as 25, retirement planning has now become a hot issue. With so many investment alternatives (mutual funds, equity, ULIPs, NPS, post office plans, PPF, EPF Pension Plans, and so on) being available, it is getting more difficult for young people to choose the best retirement option. Employees' Provident Fund, or EPF for short, is also known as PF. It is a government-sponsored savings plan for organised-sector employees. Every month, both the employer and the employee must contribute 12% of the employee's base pay and dearness allowance to the EPF account.

The government sponsors this savings plan known as the Public Provident Fund, or PPF. Individuals from all kinds of backgrounds are welcome to participate, whether they are working, self-employed, jobless, or retired. It is not compulsory, and anybody can contribute any amount to the PPF up to Rs 1.5 lakh each year, subject to a minimum of Rs 500 and a maximum of Rs 1.5 lakh. It is government-controlled and pays a defined quarterly return. A PPF account may be opened at the post office or at most major banks. To understand more about EPF & PPF, read on.

What is EPF?

Employees' Provident Fund (EPF) is a mandatory deduction from employees' salary who work for qualifying companies. This money is placed into the employee's EPF account, and the employer is required to contribute a specific amount as well. The primary goal of the EPF is to assist employees in saving and accumulating a considerable quantity of money for their retirement years so that they can stay financially self-sufficient. Employees' Provident Fund Organisation (EPFO) administers EPF in accordance with the Employees' Provident Fund and Miscellaneous Act, 1952.

The rate of return on the EPF account is substantially higher than that of a conventional savings bank account. The excess contribution is referred to as the 'Voluntary Provident Fund' if an employee wishes to donate more than the minimum necessary contribution. Section 80C of the Income Tax Act of 1961 allows EPF payments to be deducted from taxable income.

What Is PPF?

The government's Public Provident Fund (PPF) is a popular savings plan. It's amongst the most popular Section 80C tax-advantaged investing alternatives. The primary goal of the PPF is to enable people from all walks of life (even those in informal occupations) to provide and invest small sums of money whenever they desire. PPF accounts pay a greater rate of interest than regular bank accounts.

The caveat is that PPF account investments are locked up for a period of 15 years. A maximum of Rs 1,50,000 per year or Rs 12,500 per month can be invested. Every year, a mandatory minimum investment of Rs 500 should be made. Taxpayers can claim up to Rs 1,50,000 in tax deductions every year, saving up to Rs 46,800 in taxes.

The best of the two options

Both EPF and PPF have their own set of advantages and disadvantages. EPF has a number of advantages, including the fact that money may be transferred between employers and that partial withdrawals are possible under certain circumstances. You don't have to worry about putting money from your savings account because EPF is withdrawn immediately from your paycheck.

One disadvantage of EPF is that it requires monthly contributions. PPF, on the other hand, provides much-needed respite because contributions may be made whenever you choose. However, the 15-year lock-in term may appear excessive at times. You can get a loan against your PPF account balance. Tax-free maturity earnings are collected from both EPF and PPF accounts.

Endnotes

Both the PPF and the EPF are government-sponsored programmes. Section 80C of the Income Tax Act of 1961 covers several tax-saving measures. Both plans are backed by the sovereign guarantee, and people may select which one they think is best for them.