VPF vs PPF, Which is Better? Read Difference Here

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Public Provident Fund (PPF) and Voluntary Provident Fund (VPF) both are government backed investment plans, which provide guaranteed return to its investors so that they can secure their retirement. Know PPF Account details.

Though both the investment schemes are government based and both have similar names, but still, there are certain differences between VPF and PPF. These differences must be known by investors before investing money in PPF or VPF schemes.

Differences between PPF and VPF

Below given are the basic differences between PPF and VPF. All the investors should know these about these differences before investing their hard earned money, so that, they can choose the plan which best suits them.

Who can invest?Any employed residentAll residents except NRIs and HUFs
Minimum PPF lock-in periodTill retirement or resignation (whichever is earlier)15 years
Tax on maturityNoneNone
PPF Tax exemptionUnder Section 80CUnder Section 80C
PPF Maturity ExtensionCan transfer to another company till retirementIn blocks fo 5 years
Interest Rate8.5%7.1%
Difference Between PPF and VPF

VPF vs PPF – Eligibility

Any Indian resident (except the NRIs and HUFs) are eligible to invest money in PPF. But in the case of VPF, only the salaried employees can invest their money in order to save for their retirement. 

This investment will be made after the mandatory deduction of 12% from the basic salary. Though, every employee is advised to invest their money in VPF. But, if the employee does not want to invest, then, his/her employer cannot force him to do so.

VPF vs PPF – Interest Rate

The interest rate offered in both VPF and PPF are fixed and decided by the government of India, after every quarter. For the current quarter of financial year 2022-23, the interest rate in PPF is 7.1% and in VPF, it is 8.5% which is the same as offered in EPF.

This interest rate does not follow any fixed trend. Interest rate can increase or decrease every quarter as decided by the government.

VPF vs PPF – Lock in Period

The lock-in period of PPF is fixed to 15 years, which can be extended indefinitely in blocks of 5 years. The investors in PPF can take a loan against PPF till completion of 5 financial years after opening of the account. They can also take partial withdrawal under some conditions, after the 6th year of opening the account.

Whereas, the investment in VPF can be made till the retirement or resignation from a company (whichever is earlier). However, in case of resignation, the employee can open another VPF account with the new company which he/she has joined. 

There is no restriction on partial withdrawals in VPF. The employee can partially withdraw his/her money anytime after opening the account. However, if the employee withdraws the money before 5 years of account opening, then that money will be taxed.

PPF or VPF, which is better?

This is a question which completely depends on the investor. In the case of self-employed people, there is no option of VPF for them. They cannot invest in VPF, so they only have to invest in PPF.

But salaried individuals can invest in both VPF and PPF, so it is up to the individual to choose any of them or both. If he/she does not want to invest till his/her retirement, he/she can choose PPF. However, if they think they want to save their money for their retirement, then they can invest their money in VPF.

Also Know About

Can a self-employed person who doesn’t own a company invest in VPF?

No. As per VPF eligibility criteria, only the salaried individuals can invest in VPF. For other self employed people, there is PPF scheme in which they can invest.

Will the partial withdrawals made in VPF and PPF be taxed?

No, partial withdrawals made in VPF and PPF are not taxed. But in case of VPF, if the partial withdrawals are made before completion of 5 years of investment, then that money will be taxed.

How much tax benefit can the investor avail in case of PPF and VPF?

In the schemes of PPF and VPF, tax benefit is given under the section of 80C, therefore they can avail the tax benefit on a maximum of 1.5 lakh rupees per year. Any investment made above this amount will come under the taxable amount.

Is the interest rate of VPF always higher than PPF?

No, the interest rates given in VPF and PPF are subject to change by the government, so it is not compulsory that the interest rate in VPF will always be greater than PPF. 

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