Earning the money is one thing, to invest the money on right things is quite another. In fact, Investing money is more important than Earning. So if you have started to earn the money, you should know that what is difference between PF (Provident Fund)/EPF (Employee Provident Fund) and PPF (Public Provident Fund).
What is PF/EPF and PPF:
EPF(Employee Provident Fund),as its name suggests, is available to salaried employees and is a retirement benefit scheme. Whereas in PPF ( Public Provident Fund) You need not be a salaried individual.
Amount You Can Deposit :
For PF(Provident Fund), the amount is decided by the government. At present it is 12% of an employee’s basic salary. However, if he wants to, an employee can contribute more than the stipulated amount. You can open a PPF (Public Provident Fund) account in any nationalized bank or its branches that handle PPF accounts. You can also open it at the head post office or certain selected post offices. The minimum amount to be deposited in this account is Rs 500 per year. The maximum amount you can deposit every year is Rs 70,000.
ROI (Returns On Investment):
Government body decides how much return is on offer for both these funds. For financial year 2010-2011 EPF interest rate has been announced at 9.5% annum, whereas for PPF it has been kept little less at 8 %.
How long is my money blocked?
- PF (Provident Fund): The amount accumulated in the PF is paid at the time of retirement or resignation. Or, it can be transferred from one company to the other if one changes jobs. In case of the death of the employee, the accumulated balance is paid to the legal heir.
- PPF (Public Provident Fund): The accumulated sum is repayable after 15 years. The entire balance can be withdrawn on maturity, that is, after 15 years of the close of the financial year in which you opened the account. It can be extended for a period of five years after that.
What is the Tax Impact ??
The amount you invest in both PF and PPF is eligible for deduction under the Rs 1,00,000 limit of Section 80C. In PF If you withdraw it before completion of five years, it is taxed whereas in PPF you pay absolutely no tax on maturity.
What if you need the money?
EPF as well as PPF both have Premature Withdrawal and Loan Facilities available. In EPF, Premature Withdrawal is allowed only for your Daughter’s Wedding (not son or not even yours) or only if you are Buying a Home. For PPF, we can take a loan on the PPF from the third year of opening your account onwards up to the sixth year, whereas we can make complete withdrawals after it completes six years of maturity.
The reason we discussed this at length was to know the answer to a straight forward question : that is which one is better PF or PPF ?? In my opinion, PF is definitely better than PPF because in the case of PF, the employer also contributes to the fund. On the other hand there is no such contribution happening in case of PPF. The rate of interest on PF is also higher (currently 9.50%) than interest on PPF (8%). But the flip-side is, you have a longer lick-in period for your funds. So there are Pros, there are Cons. You choose, what is the best for you, after all its your own hard-earned money, isn’t it ;-)