VPF vs PPF: A Detailed Comparison

6 min read • Updated 15 May 2023
Written by Anshul Gupta

With more and more professionals employed in the non-government sectors, retirement planning has become an essential part of any financial plan. However, unlike government jobs, there is no guaranteed pension available when you retire. Therefore, most professionals realise they must regularly invest in safe, secure investments to create a robust retirement nest. Today we have a host of investment options, including mutual funds, bonds, bank deposits, equity shares, unit-linked pension plans etc., available. However, while these options promise a good return over the long term, none are risk-free.

 In this direction, the government has launched initiatives to offer a safe avenue for retirement savings. Provident funds or PFs are investment schemes specifically designed for retirement planning. In India, apart from mandatory contributions to EPF (Employee Provident Fund), you have VPF (Voluntary Provident Fund) as well as PPF (Public Provident Fund) sponsored by the government. In this blog, let us learn more about the difference between VPF and PPF and how they stand against each other.

 What is VPF?

 VPF is a government-backed retirement savings scheme offered as an add-on to the Employee Provident Fund scheme provided by EPFO. EPF is a mandatory provision for all companies with more than 20 employees. Under the EPF scheme, every employee contributes 12% of the basic pay plus dearness allowance to the EPF fund. The employer also adds an equal amount to the fund. This corpus continues until the employee retires or leaves the employment and earns a fixed rate of interest decided by the government.

VPF is an employee’s voluntary contribution to the EPF at will over and above the EPF. There is no employer contribution for VPF, and it earns the same return as EPF. The maximum limit for VPF contribution is 100% of the basic pay plus dearness allowance.

VPF is an excellent investment option with guaranteed returns and tax benefits for a long-term, secure investment.

 Who should Invest in VPF?

VPF is an extension of EPF and is available to salaried employees enrolled in the EPF scheme. Self-employed individuals or those working in the unorganised sector are not eligible for either VPF or EPF.

Companies with less than 20 employees don’t need to enrol for EPF, but they can still register with EPFO and offer their employees the benefit of EPF & VPF.

 What is PPF?

 Public Provident Fund is a government-sponsored saving scheme with a tenure of 15 years and can extend in blocks of 5 years.

 PPF can be opened by a resident Indian, irrespective of their retirement status. The contributions are tax-deductible under section 80C of Income Tax Act of 1961. Even the maturity proceeds are tax-free. The minimum investment is ₹500, while the maximum investment limit is ₹1,50,000 in a financial year.

PPF has a lock-in period of six years, after which partial withdrawals are allowed. The long-term nature of the scheme ensures disciplined savings for a retirement corpus.

 Who should Invest in PPF?

 PPF is open to resident Indians; you can open a PPF account in your name, in the name of your family members and children.

 Comparison Between VPF vs PPF

 Both VPF and PPF are government-backed long-term saving schemes. Let us look at the critical differences between VPF and PPF.

FeatureVPFPPF
EligibilityEmployees enrolled in EPF.Resident Indians.
ContributionMaximum – 100% of Basic Pay plus Dearness Allowance.Minimum ₹500 and maximum ₹1,50,000 in a Financial Year.
TaxTax Deductible under section 80C. However, if the contributions via EPF and VPF exceed Rs 2.5 lakh in a year, then the interest earned on it will become taxable.Tax Deductible under section 80C.
Maturity PeriodThe contribution to a VPF account is subject to a maturity period of 5 years.The PPF tenure is 15 years.
Extension After MaturityNot allowed.It is allowed in blocks of five years.
WithdrawalYou cannot withdraw any sum from their Voluntary Provident Fund before the completion of 5 years You can remove 50% of the accumulated corpus after six years.
Interest Rate8.1% per annum.7.1% per annum.
PurposeIdeal for retirement planning.Suitable for any medium to long-term goal, e.g. child’s education, marriage, retirement etc.

Final Thoughts

When you compare VPF vs PPF, they have pros and cons on various parameters. It is best to maximise your VPF contribution limit and save for retirement in a secure, high-yield investment. PPF and VPF are ideal for safe returns with tax benefits and saving for long-term goals. You can add them to your portfolio for risk-free fixed income allocation. 

Frequently Asked Questions (FAQs) 

1) Which is better, VPF or PPF?

VPF is an employment-linked retirement saving scheme, and PPF is a broad-based investment scheme open to all. VPF offers higher interest rates compared to PPF. You can invest in both depending on your employment status and investment goals.

2) Can we have both PPF and VPF?

Yes, you can have both VPF and PPF if you are already an EPF contributor. However, for those who do not contribute to EPF, PPF is the only option available. Both schemes are ideal for long-term goals with a secure government-backed investment option.

3) Is VPF a good investment?

VPF is a great investment tool with attractive returns. Contributing towards VPF is simple; you can fill out a form and request your employer to deduct a monthly amount over and above your EPF contributions. There is no need to open a separate account with a bank or post office for VPF.

4) How can I open a PPF and VPF?

You can visit any bank or post office to open a PPF account. It is transferable all over India, and you can access your account and make deposits online. You can also open a VPF with your company, where deductions are automatically made from your salary.

5) Is VPF tax-free?

The interest on contributions to EPF and VPF exceeding ₹2,50,000 in a Financial Year is taxable.

6) Can I withdraw from VPF after five years?

You cannot withdraw from VPF before a five-year lock-in period from the account opening date.

7) What is the difference between EPF, PPF and VPF?

EPF, the Employee Provident Fund, is a mandatory contribution of 12% every employee must make. VPF is the voluntary contribution to EPF over and above the 12% limit. PPF is an open-enrollment savings programme supported by the government.

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Anshul Gupta

Co-Founder
IIT Roorkee Alumnus and CFA with experience of structuring debt products worth more than 15000Cr for institutional and retail investors.

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