Life is full of uncertainties! It is therefore advisable to plan your future in advance. And one such thing is planning your retirement. The most secure options are the Employee Provident Fund (EPF) and the Public Provident Fund (PPF) as long-term investment instruments for retirement. Why Considered the Safest Bet? Because of their slow, steady, and safe nature. Here you can continue pumping in small quantities, which will end up in a large corpus until you retire. It is crucial for the working class to use these tools. Still, many are still confused between the two options. Let’s discuss the two investment options in detail.
See Zee Business Live TV Streaming below:
PPF versus EPF
PPF is a savings plan offered by the central government. It was set up with the aim of providing the self-employed and workers from non-organized sectors with income security in old age. On the other hand, EPF is also a government supported system and a mandatory deduction for salaries. It is a fund into which both the employee and the employer contribute 10 percent of the employee’s basic salary every month. This percentage used to be 12 percent for private organizations.
Employers and employees pay their monthly contribution to the Employee Provident Fund Organization (EPFO). The accumulated amount or part of the amount in an EPF account can be withdrawn by the employee upon retirement, termination or in the event of a COVID-19 crisis. This amount can also be transferred from one company to another if the employee changes jobs.
Return on investment: With PPF, the return is 7.10 percent per year, while EPF accounts have a return of 8.5 percent per year.
Investment duration: For the PPF account, the amount deposited is blocked for 15 years and can be withdrawn when it is due. In the EPF, however, the amount is paid out at the time of retirement or leaving, whichever occurs first. If you change jobs, the amount can be transferred from the previous company to the new one.
Maximum investment: PPF can be invested in Rs.150,000 per year, while there is no cap on the investment when it is made through the Voluntary Provident Fund (VPF). However, the employer’s contribution remains the same.
Tax calculation: A PPF is tax exempt under Section 80C, which means that with this option there is no tax on the amount due. However, EPF investments are deductible under Section 80C. The withdrawal of an EPF amount is also taxable if it is made within 5 years of being employed by the same employer.
In comparison, the EPF is cheaper than the PPF, as the EPF includes the employer’s contribution, while this contribution is not incurred in the PPF. However, PPF is a perfect option for those who are self-employed or come from unorganized sectors.
