You can invest up to Rs 1.5 lakh annually in PPF. Partial withdrawal in PPF can be done after 7 years, while partial withdrawal in VPF can be done in the 5th year.
Talking about tax-saving options, people have many schemes to invest their money, reduce taxable income and ultimately save tax. Out of all the existing options, only a few come under the EEE scheme. These options save tax not only in the beginning but also in the second stage. Let us understand here, two popular tax-saving investments PPF and VPF. What is the difference between them and which option is better.
What is PPF
PPF i.e. Public Provident Fund is a government-backed savings scheme in India that offers tax benefits and guaranteed returns. It is a popular long-term investment option that can be used for retirement planning, children’s education and housing. It has a lock in of 15 years.
What is VPF?
Voluntary Provident Fund (VPF) is a contribution made by employees that is above the minimum contribution set by the Employees’ Provident Fund Organisation (EPFO). However, the employer will not contribute more than 12% of the basic salary, irrespective of the amount contributed by the employee. Many employees opt for VPF as they do not have to make any other investment. It is convenient as the investment amount is directly deducted from their salary.
Difference between the two
PPF is available to all Indian citizens, while VPF is available only to salaried individuals covered under EPF. PPF has a lock-in period of 15 years, while VPF is linked to employment tenure. Similarly, PPF currently offers an interest rate of 7.1% on investments, while VPF offers 8.25% interest. Tax saving options are available in both. You can invest up to Rs 1.5 lakh annually in PPF. Partial withdrawal in PPF can be done after 7 years, while partial withdrawal in VPF can be done in the 5th year. While PPF is risk free, VPF is a low risk, government backed EPF scheme.
Which is better?
The answer to this question is not easy. However, if you want stability and guaranteed returns in the long term, PPF is an excellent option. The lock-in period, though long, encourages disciplined savings and can act as a reliable fund for retirement or other long term financial goals. If you are salaried and want higher contribution, want a higher rate of return than PPF, and are willing to contribute a significant part of your salary towards retirement savings, you can consider VPF.
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