PPF Vs VPF: Should you increase contribution to EPF or save more in PPF?

To opt for VPF, the salaried employee has to submit the application in writing to the employer.

The rate of interest on post office schemes, including PPF, has come down over the last few months. Currently, PPF is offering 7.1 per cent return per annum, and the interest rate is re-set by the government every quarter of the financial year. The falling interest rate in PPF is giving salaried individuals an opportunity to give importance to one’s Provident Fund account. Currently, the interest rate of EPF is 8.5 per cent per annum. The government had lowered interest rate on Employee Provident Fund to 8.50 per cent for 2019-20 from 8.65 per cent in 2018-19. The interest earned on both PPF and VPF is tax-free.

The contribution towards EPF is 12 per cent of the basic salary. However, rules allow one to increase the contribution up to 100 per cent of the basic salary. Any such additional contribution is known as the Voluntary Provident Fund and also qualifies for tax benefit under section 80C.

To opt for VPF, the salaried employee has to submit the application in writing to the employer. One has to mention the additional rate of contribution or the additional amount that one wishes to contribute towards VPF. This has to be generally submitted each year and hence does not remain the same till retirement.

PPF still remains an attractive investment option especially for the non-salaried. Both EPF and PPF enjoys a government guarantee. The additional contribution made towards VPF will not have much liquidity unless you are nearing retirement. Hence, opt carefully as the funds will get locked-in for a long period as one retires around age 60.

Before opting for VPF and contributing a higher amount out of your basic salary, make sure that your household budget is comfortably met through the other portion of your salary statement such as allowances etc. Also, ensure you have investible surplus to meet your long term goals even after increasing your PF contribution.