Every person needs financial and social security after retirement. It is the duty of the government to ensure the security and freedom of the citizen, which he gets after retirement after serving the country. All the governments provide benefits to the citizens in the form of a Provident Fund or PF. PF is a mandatory fund that is managed by the government of a country to prepare people for their retirement. There are 4 types of Provident Funds in India. Let’s understand the difference between these funds.
Any organization having more than 20 salaried members is compulsorily required to make payment to the Employees’ Provident Fund. 12% of the salary of employees or workers is sent to the account managed by EPFO. The employees also get interest on this amount. The account matures on the retirement of the employee. However, an employee can withdraw money from this account even before retirement on a few conditions. This amount is tax-free even after maturity.
Voluntary Provident Fund is the exceeding part of EPF contribution. If an employee wants to contribute more than the required 12 percent of his salary to EPF, then he will have to take the help of VPF. The interest rate on this is the same as that of EPF. Recently, EPFO has reduced the interest rate on EPF from 8.5 percent to 8.1 percent. So VPF will also have the same interest rate.
General Provident Fund is a type of PPF available only to government employees. A government employee deposits a fixed part of his salary in it as a contribution. The money deposited in this fund is also available at the time of retirement. Interest will also be available on the deposited money. The interest rate on GPF is being offered by the government at 7.1 percent. Keep in mind that private-sector employees are not eligible for GPF.
Public Provident Fund was started in India in 1968 with the objective of mobilizing small savings as an investment. On this, the tax benefit is available up to Rs 1.5 lakh annually. Anyone can open a PPF account for long-term returns. At present, a 7.1 percent interest rate is being offered on this.
Which one you should choose?
Provident funds have been proven a very strong social security instruments. Besides, they promise better long-term returns. If you are a private employee then you can take advantage of EPF as well as VPF. GPF is better for government employees, but it has a lower interest rate than EPF and VPF. On the other hand, if you are self employed and want to invest, then you only have the option of PPF.