A provident fund is established to offer stability and financial security in the later years of the employee's life. Employees who participate in this plan set aside a portion of their monthly pay for use when they retire.
Regarding interest rates, taxes, and withdrawal policies, the three main government-backed retirement plans—the Employee Provident Fund (EPF), Voluntary Provident Fund (VPF), and Public Provident Fund (PPF)—function differently from one another. Individuals particular financial goals, eligibility, and situation all come into play when choosing the best provident fund program.
EPF (Employees' Provident Fund)
Contributions to the Employees' Provident Fund Organization (EPFO) are made by salaried employees of companies registered with the EPFO. The minimum contribution is 12 per cent of Basic + Dearness Allowance (DA).
Furthermore, the employer matches the employee's 12 per cent salary contribution; the employee does not contribute 12 per cent of their pay alone. Employers with more than 20 employees and employees whose base pay exceeds Rs 6,291 are required to participate in EPF.
In addition, the amount saved is tax-deductible and accrues interest. The fact that EPF is risk-free and can be used as an investment vehicle after retirement is its most alluring feature.
VPF (Voluntary Provident Fund)
As the name implies, an employee who participates in the VPF plan is free to choose what proportion of his pay to put into his provident fund account. Nonetheless, the contribution needs to exceed the government-mandated 12 per cent PF ceiling.
On the other hand, the employer is not required to make any payments to the VPF. Employees are eligible to contribute 100% of their DA and base pay. Since there isn't a separate account for VPF, the interest offered would be the same as for EPF and would only be credited to the EPF scheme account.
PPF (Public Provident Fund)
It is a government-guaranteed fixed income security scheme designed specifically to give unorganized sector and self-employed people (i.e., non-salaried employees) financial security in their later years.
Anyone can make contributions to a PPF account, which offers guaranteed returns free from risk. Compound interest means that, in addition to the interest you receive on your initial investment, you also receive interest on the interest you earn from your PPF subscription. The entire amount that builds up over time is free from wealth tax.
Know the advantages and disadvantages of each product by comparing them one-on-one using criteria like eligibility, contribution, tax benefits, returns, withdrawal facility, etc. When choosing between these products, this comparison will be helpful.
Individuals can open PPF accounts at banks or post offices to receive the same guaranteed high returns, even if the individuals work in the unorganized sector and do not have salaries.
While only those with salaries are eligible to participate in the VPF and EPF schemes,. Subscribers to the VPF are able to contribute any amount above the required 12 per cent, which will be deposited into their EPF account.
