EPF vs PPF – Important Points to Note

The financial market offers multiple financial instruments through which steady returns can be generated. Two such long term instruments that are highly beneficial are the public provident fund and the employee provident fund. 

What is an Employee Provident Fund?

Popularly known as the Provident Fund or PF, the Employee Provident Fund is a social security scheme in which the employee has to contribute a certain amount towards the fund and the employer reciprocates by contributing the same amount too. The main objective behind this scheme is to ensure that the employees keep aside a portion of his or her salary toward retirement and to also allow them to benefit out of the tax exemption available under Section 80C of the Income Tax Act, 1961.

The employee’s contribution accounts for 12% of his or her salary and so does the employer’s contribution. But the employer’s contribution would be a combination of the following –

1. 8.33% towards Employee Pension Scheme (EPS),
2. 3.67% that would go towards EPF,
3. 1.10% towards EPF administrative charges,
4. 0.50% towards Employees Deposit Link Insurance Scheme (EDLIS),
5. 0.01% towards EDLIS administrative charges.

The beneficiary will get the entire principal with interest at the time of retirement.

All provident fund accounts are maintained by the Employees’ Provident Fund Organisation (EPFO), a statutory organisation. The employee is provided a 12 digit Universal Account Number (UAN) for the PF account opened.

Important points to note about EPFs

• Both public and private employees can invest in PF.
• It is mandatory for employees that earn less than Rs. 15,000 annually.
• In case individuals who earn more than Rs. 15,000 wish to invest in this scheme, they have to take permission from the Assistant PF Commissioner.
• The enrolment of an individual into the EPF scheme happens at the discretion of the employer. The entire process involved is completed by the employer.
• An organisation can only enrol the employee if it is a registered company under Schedule I of the EPF Act. The organization must also have a strength of 20 people or more.
• In case the individual is a business owner, then all eligibility criteria have to be met before enrolling in the scheme.
• EPF e-Sewa portal enables one to access the various services of EPF such as transferring funds, checking the status of applications etc.

What is a Public Provident Fund?

A long-term scheme operated by the Government of India, Public Provident Fund, has been created with the purpose of instilling the savings culture amongst citizens of India. The sums given are invested into fixed-income securities. The risk involved is low and the returns are guaranteed. It comes with a lock-in period of 15 years and can be renewed for a 5 year period thereafter. The PPF account can be opened in the Post Office or in a certified bank account.

How to Invest in a Public Provident Fund?

• One must fulfill the eligibility criteria mentioned below before opening a PPF account –

1. One must be an Indian citizen.
2. Minors can open a PPF account provided that it is operated by their parents.
3. NRIs cannot open PPF accounts. However, if one already exists then it can continue till the completion of tenure.

• KYC documents verifying the identity of an individual, PAN card, Address proof, Nominee Declaration form, and passport size photographs have to be provided at the time of activation of the account.
• The process for opening the account can be done online in which the fund transfer can be affected with the help of net-banking or mobile banking or a third party transfer and offline which involves depositing the amount by cash, cheque or demand draft along with the PPF deposit challan.

Difference Between PPF and EPF

Basis	Public Provident Fund	Employers Provident Fund
Eligibility to invest	All Indians except for NRI.	Only for salaried employees.
Investment amount	A minimum amount of Rs. 500 must be invested and a maximum of Rs. 1,50,000 can be invested annually.	A compulsory 12% of the salary must be paid.
Tenure	Has a lock-in period of 15 years and can be renewed for 5 years thereafter.	It can be closed when one permanently quits his or her job.
Liquidity	Not liquid until 5 years tenure at least.	More liquid.
Rate of interest	7.1% per annum	8.50% per annum
Tax treatment	PPFs are EEE i.e. exempt at all stages of the investment. These are tax free up to a limit of Rs. 1,50,000 under Section 80C of the Income Tax Act.	PF amount is tax-free on the completion of 5 years.
Contribution made by	Self or parent as in case of minor	Both employee and employer
Governing Act	Public Provident Fund Act, 1968	Employees Provident Fund and Miscellaneous Provisions Act, 1952

Which is Better- EPF Vs PPF?

There is no standard answer to indicate which is the better of the two. Each has its own pros and cons associated with it and one can decide based on which merit or demerit has a greater impact or is of greater concern to them.

If you are someone with a low risk appetite and are looking for safer avenues for investment, you could invest in both of the instruments. You could also invest in PF and/or PPF to make your investment diversified after investing in equity mutual funds.

Frequently Asked Questions

1. What is an EPF Account?
   It is a government bank account in which amounts are credited on a monthly basis in lieu of EPF. The balance can be checked with the help of the EPFO Sewa portal, an application and via SMS. An EPF account holder can make either online payments on the EPFO portal or offline payments.

2. Can money be withdrawn due to unemployment on PPF?
   No, one cannot withdraw money due to unemployment whereas EPF allows you to withdraw money after being unemployed for a certain period of time.

3. What are the drawbacks of PPF?
   There is no option for partial withdrawal prior to 5 years.

• It has a lower interest rate than EPF.
• It has a fixed rate of interest over the long run.

4. What are the Benefits Associated with EPF?
   Creates a substantial savings corpus for a comfortable post retirement lifestyle.

• No need to pay a one-time investment.
• Allows one to enjoy tax benefits.
• Creates a financial backup for emergencies and contingencies.
• Get higher capital gains, access to life insurance aids, and higher credit returns by having an EPF account.