Provident Fund is an investment fund, wherein specified individuals can make the contribution, and a lump sum amount which includes the principal and interest thereon is paid to the holder, either on maturity or on retirement. EPF or Employees Provident Fund refers to an arrangement whereby a certain percentage of the salary of the employees is deducted every month to contribute it towards the EPF account.
On the other hand, PPF or Public Provident Fund is one such scheme for the general public, whereby a common man can voluntarily invest money in the fund. EPF and PPF are two savings avenues, in which the investment can be made to get the retirement benefits. Further, it also mobilizes the savings of the general public, which reaps interest.
To further understand the two schemes along with their differences, take a read of the article presented to you.
Contents: EPF Vs PPF
|Basis for Comparison||EPF||PPF|
|Meaning||EPF scheme is offered by Employee Provident Fund Organization (EPFO) in which all the employees drawing salary less than 15,000 has to mandatorily contribute a part of their income into the fund as savings.||PPF is an investment scheme whereby any citizen of the country can invest their money towards the fund in specific bank branches or post office.|
|Governing Act||Employees Provident Fund and Miscellaneous Fund Act, 1952||Public Provident Fund Scheme, 2019|
|Eligibility||Salaried employees of organization registered with Employees Provident Fund Organization.||All the citizens of India, including salaried persons, but excluding NRIs.|
|Contributor||Both employee and employer.||Self or parent in case of minor and guardian in case of person of unsound mind.|
|Amount to be invested||Employees contribution to EPF is 12% of Basic Salary + Dearness Allowance (DA), and a similar percentage is contributed by the employer.||Minimum ₹ 500 and Maximum ₹ 1,50,000|
|Tenure||Depends on the individual's term in the organization.||15 years which can be extendable for a block of 5 years on application.|
|Loan||Loan can be availed against EPF, after the completion of 5 years of service.||Loan against PPF is available upto 25% of the PPF balance, subject to certain conditions.|
Definition of EPF
Employees Provident Fund abbreviated as EPF is one of the schemes under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, the other being Employees’ Pension Scheme and Employees’ Deposit Linked Insurance Scheme. The fund is managed and governed by the Employee Provident Fund Organization, shortly called as EPFO.
Every organization employing 20 or more employees have to register themselves with the EPFO. However, organizations with less than 20 employees can also register with EPFO, subject to certain conditions are satisfied.
The scheme is just to encourage the savings of employees, wherein a fraction of their basic salary (including dearness allowance, if any) is deducted every month and contributed towards the scheme. A similar amount is contributed by the employer too. At the time of leaving the company, i.e. retirement or resignation, the employee gets the corpus sum along with the interest accrued on it over the years of service.
In general, 12% of the salary is contributed by both employer and employee into the account, wherein the entire portion contributed by the employee is credited to the EPF account and only 3.67% of the employer’s contribution is credited to the EPF account, while the remaining 8.33% is transferred to the Employee’s Pension Scheme. The government and central board of trustees determine the rate of interest on EPF, every year.
Definition of PPF
PPF is an acronym for Public Provident Fund, a scheme available to the general public. In the year 1968, this scheme is introduced by the National Savings Institute, which works under the Ministry of Finance. The scheme is managed and governed by Public Provident Fund Scheme, 2019, which was earlier regulated by Government Savings Bank Act, 1873, while initially it is regulated by the Public Provident Fund Act, 1968.
PPF is a safe, long-term, tax-free, interest-bearing, savings plus investment vehicle which helps individuals to accumulate good amount for their retirement, by investing a certain sum over a long period of time, into the fund. The government determines the rate of interest every year.
Any person who is a resident of the country can make an investment in the PPF account, except the Hindu Undivided Family. Further, in case of minor and person of unsound mind, the parent or guardian can open an account on behalf of them. However, opening a joint PPF account is not permissible. Moreover, the account can be opened in any post office and selected bank branches.
It has a lock-in period of 15 years after which the accumulated sum with interest can either be withdrawn and the account is closed, or the term can be extended on the application for a block of 5 years.
Further, the deposit limit ranges from ₹ 500 to ₹ 1,50,000 in a financial year. Here, it should be noted that the deposit limit is combined, in the sense that the total deposit made in the individual’s own account and the accounts opened on behalf of other persons, should not be more than ₹ 1.5 lakhs. Further, a maximum of 12 deposits in a year is allowed.
Partial withdrawal from the account is allowed after completion of 5th financial year from the date of opening the account. Here partial withdrawal means lowest of 50% of the total amount in the PPF account at the end of 4th year, immediately preceding the year in which withdrawal is to be made or at the end of the preceding year.
Key Differences Between EPF and PPF
The points given below are noteworthy so far as the difference between EPF and PPF is concerned:
- EPF expands to Employee Provident Fund which is a scheme is operated by Employee Provident Fund Organization (EPFO) wherein all the employees of an eligible organization, drawing salary less than 15,000 has to mandatorily contribute a certain percentage of their income into the fund as savings. On the contrary, PPF stands for Public Provident Fund, as the name suggests, this is an investment scheme for general public whereby all the citizens aged above 18 years can invest their money towards the fund in specific bank branches or post office.
- EPF is regulated by the Employees Provident Fund and Miscellaneous Fund Act, 1952. Conversely, PPF is governed by the Public Provident Fund Scheme, 2019, presently.
- EPF is applicable to the salaried employees of establishment registered with the Employees Provident Fund Organization. As against, PPF account can be opened by any resident of India, including salaried persons, but excluding Non-resident Indian (NRI) and Hindu Undivided Family (HUF).
- EPF is mandatory for all the employees of organizations registered with EPFO drawing salary less than ₹ 15000, and those whose salary is more than ₹ 15000 can choose to contribute towards EPF. In contrast, PPF is voluntary in nature, i.e. individuals can save and invest as per their own discretion towards the fund.
- Both employee and employer contribute to the EPF, whereas the person himself/herself or parent in case of minor and guardian in case of a person of unsound mind, contributes toward PPF.
- In the case of EPF employee’s contribution to EPF is 12% of Basic Salary + Dearness Allowance (DA), and a similar percentage is contributed by the employer. On the contrary, a minimum ₹ 500 and maximum ₹ 1,50,000, is allowed to be invested in PPF in a financial year.
- The term of EPF is depended on how long the individuals provides his/her service to the organization, i.e. once he/she resigns, the fund is either transferred to the new organization in case job is switched or the accumulated sum is withdrawn and the account is closed when the job is left permanently. Further, in the case of retirement, the amount is transferred to the bank account of the concerned individual. On the contrary, PPF has a fixed term of 15 years, after which the person can choose to extend the term for a block of 5 years or he can withdraw the same and close the account.
- One can avail loan against EPF account, after the completion of 5 years of service. However, loan against PPF is available up to 25% of the balance standing in the credit of PPF account, subject to certain conditions are satisfied.
Both EPF and PPF provide the facility of Nomination so that in the case of death of the person concerned, the amount is paid to the nominee. This can be done in favour of mother, father, spouse and children excluding brother and sister. Also, there can be more than one nominee provided the account holder mentions their name at any point in time.
Nomination in favour of any person other than mentioned above is deemed invalid but in case it is done, then the amount is paid to the legal heirs of the deceased account holder.
- Both are long term savings cum investment vehicles, which helps to build a corpus fund over time.
- Nomination facility is available in both cases.
- The loan can be available against the fund.
- Both the investment avenues help the person to save taxes.
Provident Fund is basically a retirement scheme which saves a certain portion of your hard-earned money to have a good sum of savings, at the time of emergencies or to avail loan or use it post-retirement.
These two are so popular because of the lucrative interest rate, a person can reap over the years, which is usually greater than the interest provided by banks, as well as the principal amount and interest thereon is exempt from taxes. The other benefit is the lock-in period, i.e you just have to invest the amount and take its advantage in the future.