Smart investing plays a great role in securing your future. In India, the Public Provident Fund (PPF) and the Employees Provident Fund (EPF) are favored investment options. At the same time, they have similarities they serve different purposes and offer unique advantages. If you already hold an EPF account you might be considering the merits of opening a PPF account. This post talks about the characteristics of both accounts, their perks, and whether adding a PPF account to your portfolio is a smart financial move.
What is PPF?
The government offers a savings scheme called the Public Provident Fund (PPF) for long-term financial security. It encourages individuals to save for the future with a fixed interest rate determined quarterly by the government. Contributions made to a PPF account qualify for tax deductions under Section 80C of the Income Tax Act, and both the interest earned and the maturity amount are exempt from tax. People can begin investment with as little as Rs. 500.
Invest up to Rs. 1.5 lakh annually in a PPF account. These accounts have a 15-year maturity period that can be extended by 5 years at a time. All residents are eligible for the program, including independent contractors.
Features of PPF
Here are the key features of a PPF account:
1.Interest Rate
The government determines and compounds the interest rate for PPF on a quarterly basis. Generally, this rate is higher than traditional savings options, presenting a lucrative avenue to increase your savings over time.
2.Investment Duration
The minimum period you must invest in a PPF account is 15 years. However, you can extend this duration in 5-year increments allowing for long-term growth and flexibility. This extended timeframe is especially beneficial for those aiming to grow their wealth over a longer period.
3.Minimum and Maximum Contribution
You are required to contribute a minimum of Rs. 500 to a PPF account with the limit set at Rs. 1.5 lakh in a year. This range accommodates both substantial investments, catering to a group of investors.
4.Loan Provision
A key advantage of holding a PPF account is the ability to avail of loans against your balance from the 3rd year up to the 6th year of opening the account. This provision offers leeway during emergencies or unforeseen expenses.
5.Partial Withdrawals
After the 7th year, individuals have the option to make withdrawals from their PPF account provided they meet specific conditions. This feature allows for accessing funds while maintaining the long-term savings objective of the account.
What is EPF?
The Employees Provident Fund (EPF) is a retirement savings program managed by the government for employees. It aims to ensure financial stability post-retirement. Both the worker and employer contribute a percentage of the employee’s salary to the EPF account.
The contributions to EPF earn interest, which is compounded annually. Upon retirement, resignation, or in emergencies employees can access the amount saved along with interest. EPF provides tax benefits on contributions and interest earned.
Features of EPF
Here are the key features of EPF:
1.Provident Fund Balance
The EPF balance consists of contributions from both the employee and employer along with accumulated interest over time. This balance increases as you continue your employment building a substantial fund for your retirement.
2.Pension Scheme
The EPF is associated with the Employees Pension Scheme (EPS) which offers pension benefits upon retirement subject to meeting certain conditions. This additional layer of security ensures employees have support during their retirement years.
3.Withdrawal
Employees can transfer their EPF balance when leaving their job or retiring. This flexibility guarantees access to funds when necessary be it, for emergencies or post-retirement needs.
Comparing EPF and PPF
Here’s a detailed comparison to help you decide:
| Feature | EPF (Employees’ Provident Fund) | PPF (Public Provident Fund) |
| Purpose | Retirement savings for employees in the organized sector | Long-term savings for individuals seeking a secure investment |
| Eligibility | Mandatory for employees in the organized sector (both private and public) | Open to all Indian residents, including self-employed and non-salaried individuals |
| Contribution | 12% of basic salary + dearness allowance from the employee, matched by the employer | Minimum Rs. 500 to maximum Rs. 1.5 lakh annually |
| Interest Rate | Set annually by EPFO; generally competitive but can vary | Fixed by the government, compounded annually |
| Tax Benefits | Tax-deductible contributions; interest and maturity amount tax-free | Tax-deductible contributions under Section 80C; interest and maturity amount tax-free |
| Investment Tenure | Linked to employment; continues as long as employed | 15 years, extendable in 5-year blocks |
| Pension Scheme | Includes Employees’ Pension Scheme (EPS) providing pension benefits | No pension scheme; focused on savings and tax benefits |
| Withdrawals | Allowed upon retirement, resignation, or after certain conditions | Partial withdrawals are permitted from the 7th year; complete withdrawals after maturity |
| Loan Facility | No loan facility is available | Loan facility available from the 3rd to 6th year |
| Account Management | Managed through the EPFO; automatic with employer | Managed by the individual; requires manual management and tracking |
| Flexibility | Less flexible; contributions and withdrawals are tied to employment status | More flexible with options for partial withdrawals and loans |
How to Open a PPF Account?
PPF Account can be opened quickly and easily from your bank’s website or mobile banking application. Here is how to open a PPF account online:
Using your Internet Banking Account
- Log in to your bank account using your net banking ID and password.
- Go to Bank Accounts and then PPF Accounts.
- Select Open Now
- Fill in the required details.
- Set up standing instructions.
- Use the one-time password (OTP) sent to your mobile phone, which must be connected to your Aadhaar and bank account, to electronically sign the document.
Your UID number must be linked to your savings account. Once you’ve opened the account, funds will be debited from your savings account. You can also use your bank’s online banking to operate your PPF account and check and print account statements.
Using a Mobile Banking Application
You can also apply and manage a PPF account through your bank’s mobile banking application. Here are the steps to apply:
- Log in to your bank account on the mobile app, and simply click on the ‘PPF’ option under the Investments tab.
- Under the PPF option, click on “Apply Now”.
- Tick the Declaration checkbox and start the application.
- Enter the Initial Deposit Amount to open an Instant PPF Account.
- Next, select your Savings Account as the debit account.
- Now, choose the account nominee, you can keep the same nominee as your savings account.
- Next, if you want to apply to automatically fund your PPF account with the same amount every month, select the auto debit option and click on submit.
- Now, enter your Aadhar Number and re-enter to confirm on the NSDL E-Sign website and request for OTP.
- Once E-Sign verification is successful.
- A pre-confirmation form will appear with your details filled in, click on confirm and your PPF Account will be opened. You can view/download your application.
After your application has been reviewed the bank will provide you with a PPF passbook. This passbook will record all your transactions and can be used for claiming tax benefits under Section 80C of the Income Tax Act.
Conclusion
Both PPF and EPF accounts offer benefits and can serve different financial purposes. If you already have an EPF account, opening a PPF account can bring added advantages, like tax benefits, investment flexibility, and a secure way to save for the term.
A PPF account can complement your EPF by diversifying your investment approach and providing a long-term savings option with guaranteed returns. It also allows for flexibility with withdrawals and loans which can be beneficial in financial situations.
By investing in both PPF and EPF accounts you can strengthen your stability, and work towards a secure future.
