EPF Or PPF: Which Is Better For A Rs 1.44 Lakh Annual Investment Over 30 Years?
Retirement planning is a vital aspect of financial security, requiring careful selection of investment tools. Among the many options available, Employees' Provident Fund (EPF) and Public Provident Fund (PPF) are two of the most trusted, offering tax benefits and steady returns. Understanding their differences and growth potential can help you make informed decisions. This article compares the two schemes, with an investment of ₹1.44 lakh annually, over a 30-year period to determine which can create a larger retirement corpus.
What is EPF?
The Employees' Provident Fund (EPF) is a retirement-centric scheme tailored for private-sector employees. Contributions are deducted from the employee’s salary, matched by the employer, and deposited into the EPF account. Interest, compounded annually, is accrued on the accumulated funds, making it an attractive option for long-term savings.
EPF Interest Rate and Contributions
- Interest Rate: The current EPF interest rate stands at 8.25% and is reviewed quarterly by the Labour Ministry.
- Contribution Limits: Employees contribute a minimum of ₹1,800, with the maximum being 12% of their basic salary and dearness allowance (DA). Employers also match the contribution.
EPF deposits up to ₹1.50 lakh annually qualify for tax deductions under Section 80C of the Income Tax Act, 1961. Additionally, the interest earned and the maturity amount are tax-free. Being an exempt-exempt-exempt (EEE) category scheme, EPF provides significant tax advantages.
When Can EPF Be Withdrawn?
EPF funds can be withdrawn under specific circumstances
- On retirement at 58 years or after 10 years of service.
- After two months of unemployment.
- For purposes like marriage, home renovation, or construction.
The Public Provident Fund (PPF) is a government-backed savings scheme open to all individuals. Contributions can be made in lump sums or instalments, with accounts available at banks or post offices. PPF is popular for its reliability and flexibility.
PPF Interest Rate and Contributions
- Interest Rate: Currently, PPF offers a 7.1% interest rate, compounded annually.
- Contribution Limits: The minimum annual deposit is ₹500, and the maximum is ₹1.50 lakh.
PPF accounts mature in 15 years, but account holders can extend the tenure indefinitely in five-year blocks. During extensions, contributions are optional, and the account continues to accrue interest. Withdrawals during these extensions are permitted once annually, with the option to close the account anytime.
Tax Benefits of PPF
Like EPF, PPF deposits up to ₹1.50 lakh annually, the interest earned, and the maturity amount are tax-free, making it an EEE scheme. This ensures a risk-free and tax-efficient investment option.
EPF vs PPF: Growth in 30 Years
To evaluate which scheme offers better returns, consider an annual investment of ₹1.44 lakh. For PPF, the entire amount is deposited at the start of each financial year to maximise compounding benefits.
PPF Growth Over 30 Years
- Total Investment: ₹43,20,000
- Estimated Interest Earned: ₹1,05,12,874
- Total Corpus: ₹1,48,32,874
- Total Investment: ₹43,20,000
- Estimated Interest Earned: ₹1,41,69,110
- Total Corpus: ₹1,84,89,110
The choice between EPF and PPF depends on individual circumstances
- Higher Returns: EPF’s higher interest rate and employer contribution make it more lucrative for salaried employees.
- Flexibility: PPF offers more flexibility with contributions and account extensions, making it suitable for self-employed individuals or those without EPF eligibility.
- Tax Benefits: Both schemes provide similar tax advantages, ensuring efficient savings growth.