Both EPF and PPF are considered safe investment options that provide guaranteed returns. But, which is better? Let’s find out how these two stack up against each other.
Salaried employees often find themselves in uncomfortable shoes when it comes to retirement planning. In their haste, they forget it’s their ticket to freedom. However, as days turn into months and the time for tax declarations looms near, employees wake up from their reverie.
And suddenly, there are too many instruments to consider – Fixed Deposits, EPF, Mutual Funds, Insurance, PPF…the list is endless. While the sheer number of choices is enough to confuse even the most seasoned of planners, it helps to know the fundamentals.
As far as retirement planning is concerned, EPF and PPF stand out as the most popular options. Both of them have two things in common: investment safety and guaranteed returns. While the Employee Provident Fund (EPF) is available exclusively for salaried employees, the Public Provident Fund (PPF) is open to everyone.
But, which is better? Let’s take a look at how EPF compares against PPF.
EPF Vs PPF
For salaried employees, EPF is a mandatory requirement that needs to be fulfilled. The rule is – you pay up to 12 percent of your basic salary and DA towards your Employee Provident Fund account along with your employer who contributes an equal part.
In contrast, the Public Provident Fund is a voluntary scheme that is immensely popular for offering the dual advantage of being a retirement saving scheme and a tax-saving instrument. An individual is allowed to make a minimum deposit of Rs 500 and a maximum of Rs 1.5 lakhs in a financial year.
Additional Reading: Tax Saving: What To Choose Between PPF Or ELSS?
Interest Rate
The interest rate on EPF is declared by the governing body (EPFO) every year. If you look at the numbers below, you will notice that the interest pay-out was highest in 2015-16 and lowest in 2017-18.
- 2017-18 – 8.55 percent.
- 2016-17 – 8.65 percent
- 2015-16 – 8.8 percent.
When it comes to PPF, the interest rate is decided on a quarterly basis. The interest rate for the quarter Oct-Dec, 2018 was 8 percent.
Investment Period
Your relationship with EPF continues for the total duration of your employment. You are eligible to withdraw the maturity amount at the time of retirement.
The investment period for PPF is much shorter. It comes with a mandatory lock-in period of 15 years with the added option to stay invested for longer.
Tax Liabilities
You need to complete at least five years of continuous service to get your EPF maturity amount exempt from tax. If you withdraw your EPF amount before the completion of five years, you’ll end up paying 10 percent as TDS.
With PPF, you pay zero taxes if you stay invested for the entire 15 years since it comes neatly wrapped with an EEE tax status. Your investments are therefore tax-free at all levels – contribution, accumulation, and maturity.
Loan Disbursement
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EPF
Partial Withdrawal Or Complete Withdrawal?
When it comes to EPF, you can choose to withdraw the maturity amount completely or partially. Complete withdrawal is possible only when you have reached the age of retirement. However, if you are in dire need of a financial push, you may try opting for a partial withdrawal.
Additional Reading: Understanding The New EPFO Withdrawal Rules
Eligibility Criteria For Advance PF Withdrawal
In order to be eligible for partial withdrawal of your EPF amount, you will need to complete at least 5 years of continuous service. Even if you choose to work with multiple employers during this period, make sure you don’t open a new PF account every time you change a job.
You can apply for a partial withdrawal provided you meet the eligibility criteria and follow the norms presented below:
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Reason for withdrawal | Withdrawal Limit | Years in service | Mandatory criteria |
| 1 | Marriage | Up to 50% of employee’s share of contribution to EPF | 7 years | For the marriage of self, son/daughter, brother/sister |
| 2 | Education | Up to 50% of employee’s share of contribution to EPF | 7 years | For self or for higher education of children |
| 3 | Purchase of land / or construction of a house | For land – up to 24 times of monthly wages plus DA For house – up to 36 times of monthly wages plus DA |
5 years | The land or the house should be in the name of the employee or spouse or it has to be held jointly. |
| 4 | Loan repayment | The members are allowed to withdraw up to 36 months of PF contribution or the actual amount of outstanding amount, whichever is less. | 10 years | You may be required to furnish proofs in order to avail this facility. |
| 5 | 1 year before retirement | Up to 90% of accumulated balance with interest | Once the account holder reaches the age of 57 | Only valid PF account holders are eligible to withdraw. |
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Loan Against PPF
Eligibility Criteria
Securing a loan against your PPF account can get a little tricky. A PPF account holder can apply for a loan between the third and sixth year of opening the account. For instance, an account that was opened in 2014-15 will become eligible for a loan between 2017-18 and 2020-21.
Loan Limit
The loan amount cannot exceed 25% of the balance at the end of the second fiscal year preceding the year in which the loan was applied for.
Additional Reading: PPF Withdrawal Rules, Loans And Premature Closure
Interest Rate
Interest is charged at 2% more than the interest earned on the balance in the PPF account. So when the interest rate of the PPF account changes, the interest rate on the loan will also see a proportional change.
Repayment
The loan can be repaid within 36 months. This timeline is calculated from the first day of the month following the month in which the loan is sanctioned. In case you fail to pay off the loan within the stipulated time, the interest rate will be hiked to 6% more than the interest earned on the PF balance. If you have paid off the principal amount but a part of the interest amount is still unpaid, it will be deducted from your PPF balance.
Both EPF and PPF are fantastic avenues for retirement planning. But, in order to battle the rising cost of inflation, you need to stay alert and keep your options open. While you plan for the future, make sure you have all the essential tools at your disposal.