Your investment portfolio is like a superhero team that should consist of both attackers and defenders. While equity mutual funds serve as the attackers getting you amazing returns, you also need amazing defenders to ensure the following:

1. Security

2. Diversification

3. Risk-free returns

While there are several great options available, the Employees Provident Fund (EPF) and Public Provident Fund (PPF) are arguably the best government fixed-income schemes for all the above three purposes.

However, with only a few seats to fill your portfolio with, there arises a question:

Which is better – PPF Vs EPF?

Let’s find out. 

Employees Provident Fund (EPF)

Employee Provident Fund is basically an account where a small amount of money is invested from your salary. Both you and your employer invest a small portion of your salary into the EPF account monthly. 

If you wish to, you can increase your contributions to EPF via VPF (Voluntary Provident Fund). However, the contribution from the employer would remain the same. 

The idea behind EPF is to help you build your retirement fund. Hence, the lock-in period is until your retirement with partial withdrawals being allowed under certain conditions like marriage, home purchase etc.

EPF currently provides 8.25% post-tax returns. If you want to make a similar return from a debt fund you would have to earn around 12% returns at the highest tax slab. 

Moreover, the money invested in EPF can be claimed as a tax deduction under Section 80C and the amount at maturity is also tax-free.

Also Read: What is the penalty for missing minimum deposit in PPF, NPS, SSY accounts?

Public Provident Fund (PPF)

The PPF is a popular long-term government savings plan that helps you save your money and get tax benefits under 80C as well. Similar to EPF, the PPF amount at maturity is also tax-free. However, unlike EPF, you cannot invest limitlessly and the maximum cap is Rs 1.5 lakh in a year.

Also, you have to invest Rs 500 every year to keep your account active. PPF provides fixed returns of about 7.1%. This rate of interest fluctuates but it is generally higher than the rate of inflation.

While there is a minimum tenure of investment of 15 years, partial withdrawal is allowed after the 7th year.

PPF vs EPF

Note: In case you are unemployed for more than 2 months, you can withdraw your entire EPF corpus. However, you cannot withdraw from PPF due to unemployment.

Which is better?

Well, if you are a salaried employee,  EPF is likely a better choice returns-wise. However, one should consider that EPF has a lock-in period up until retirement whereas for PPF it’s 15 years.

Another thing you must note is that while there is no maximum limit, if your contributions to EPF and VPF exceed Rs 2.5 lakh in a year, then the interest earned on the excess will be taxed.

Also, while EPF does offer convenience in terms of automatic withdrawals, it doesn’t offer the flexibility of being able to invest whenever you want like PPF. Therefore, all these factors must be considered before making an investment decision.

Disclaimer: The above content is for educational purposes only. The 1% News suggests consulting a SEBI-registered investment advisor before investing in EPF or PPF.