Lets see each of PPF and EPF in detail . Both are providend fund benefits for retirement .
Employee Provident Fund (EPF)
The Employee Provident Fund, is a retirement benefit scheme that is available to salaried employees.Under this scheme, a stipulated amount (currently 12%) is deducted from the employee’s salary and contributed towards the fund. This amount is decided by the government.The employer also contributes an equal amount to the fund.
However, an employee can contribute more than the stipulated amount if the scheme allows for it. So, let’s say the employee decides 15% must be deducted towards the EPF. In this case, the employer is not obligated to pay any contribution over and above the amount as stipulated, which is 12%.
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Other Points :
- Return on Investment: 8.5%
- If you urgently need the money, you can take a loan on your PF. You can also make a premature withdrawal on the condition that you are withdrawing the money for your daughter’s wedding (not son or not even yours) or you are buying a home.
- tax benefit under Sec 80C.
- The amount if withdrawn after completing 5 years in job will not be taxable.
Public Provident Fund (PPF)
The Public Provident Fund has been established by the central government. You can voluntarily decide to open one. You need not be a salaried individual, you could be a consultant, a freelancer or even working on a contract basis. You can also open this account if you are not earning.Any individual can open a PPF account in any nationalised bank or its branches that handle PPF accounts. You can also open it at the head post office or certain select post offices.
You can take a loan on the PPF from the third year of opening your account to the sixth year. So, if the account is opened during the financial year 1997-98, the first loan can be taken during financial year 1999-2000 (the financial year is from April 1 to March 31).
The loan amount will be up to a maximum of 25% of the balance in your account at the end of the first financial year. In this case, it will be March 31, 1998.
You can make withdrawals during any one year from the sixth year. You are allowed to withdraw 50% of the balance at the end of the fourth year, preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower.
For example, if the account was opened in 1993-94 and the first withdrawal was made during 1999-2000, the amount you can withdraw is limited to 50% of the balance as on March 31, 1996, or March 31, 1999, whichever is lower.
If the account extended beyond 15 years, partial withdrawal — up to 60% of the balance you have at the end of the 15 year period — is allowed.
Other Points:
- The minimum amount to be deposited in this account is Rs 500 per year. The maximum amount you can deposit every year is Rs 70,000.
- Return on investment : 8%
- tax benefit under Sec 80C , no tax on the maturity and no tax on interest earned.
- If you’re involved in a legal dispute, a court cannot attach or question the money in your PPF account.
Who should invest in PPF ?
Its mainly for people who are very conservative and cant take risk to great extent.
Any one who wants to invest for long term in some secure saving instrument must invest in PPF. To achieve long term goals there are many option like:
- Mutual Funds (Equity)
- Shares (Equity )
- PPF (Debt)
- Fixed Deposit (Debt)
- NSC (Debt)
- Others
Out of these , all under Debt catagory are safe. PPF is the most recommended if the investment horizon is very long like 15+ years.
Because of compounding you money will grow to a big amount.
I would be happy to read your comments or disagreement on any topic. Please leave a comment.
{ 77 comments… read them below or add one }
Hi Manish,
Your article is very useful. I have a question on PPF acc.
Can I deposite every yr different amt in my PPF acc?
If I start PPF acc by depositing 5000 so can I deposite 500 next yrs and 10000 next to next yr?
@Anonymous
Yes you can , the max limit is just 70k and min is 500 per year ..
Manish
Hi manish – thanq u very much for posting such useful information on investing…I have read couple of articles in your blog / website.those are very good in explaining basics.. I have a question regarding ppf.. Can nris open an ppf account..if yes, what is the procedure?
Thanks!
Hi,Manish
Can NRI open PPF account from their acoount from moneis in indian Bank? or how they become able to invest?
can i get answer?
@has patel
NRI can open the PPF account just like every other indian citizen ?
Not sure of the procedure , but you might have to give some document proofs , thats it .. For rest details ask GOD .. aka google .
Manish
Hi Manish…great collection of information you have..just one more thing i want to ask. Is there any way to open the a/c online ? and last thing, after maturity 15 years can one withdraw the entire amount or has to stick to 60% only ?
@Shrikant
No , PPF is one of the oldest things we have and its still managed and sold in traditional way . You have to visit your nearest Post office or Some Nationalised Bank , may be SBI to open your PPF.
After 15 yrs, you can withdraw your 100% money .
manish
Hi Manish, My company has less than 20 employees and hence company gives 10% basic+DA as PPF contribution. It is given to us as a cheque after the end of the financial year and company insist us to deposit into our account. However, as mentioned the amount is paid to us after the current financial year in April or May though it was a part of the current FY contribution. Is this correct to make the payment in next FY. Please assist. Thanks. Sudir
Sudir
That should not be the case , they should pay the contribution in the same year .. May be we need tax expert here ..
Rishabh , can you help ?
manish
Hi Manish,
I contributed some amount to EPF account 15 years back. I never note that account number. Can I trace that number on Web. Still that account active?. Which site would help to check my account?.
Secondly, Is that EPF different from PPF account. I like to invest some amount in PPF as your advised (pl. suggest how much % PPF in inv. allocation and years). I have account with ICICI bank. Is it passable to open with them PPF account?. pl. help.
Thanks & Regards,
Raja
Raja
you should enquire about your EPF with your company for which you work . EPF is at company , so incase you are working at present , get details from your company , if you left your old company you should have transferred the EPF from first company to second . If you have not done that yet , try contacting your first company .
The conclusion here is that you should enquire in your company about your EPF . You can open PPF account anytime . go with SBI or some post office . The allcation would depend on your risk appetite and your own needs . I would say put more and more if you are not risk taker and can put money for long term .
Manish
Manish,
Will EPF not outscore PPF in terms of returns and investment ?
EPF gives 8.5% p.a whereas PPF gives 8%.. Also, in EPF your employer contributes half of the amount. whereas there is no such contribution in PPF.
Of course EPF cannot be opened by unemployed … whereas PPF is open to everyone…
Your views…
Shantharam
Shantharam
yes , EPF outscore PPF when it comes to returns . Also because employer also contributes same amount as you do (max 12% of basic salary) .
So a person should always try to put PF upto 12% of basic and if possible more than that . PPF is some thing extra we should look after if we can take advantage of EPF .
Manish
Manish,
what is the frequency of interest calculation by post office / bank for the individuals saving amount lying in PPF a/c ?
For example, I opened PPF a/c in Jan 2009 with an intial deposit of 10,000 INR and deposited again 10,000 INR each time in Apr 2009 and Sep 2009.
Is the interest calculation will be done for entire 30,000 one time for year 2009. How it works?
Mahesh
Interest is calculated just one time in a year on the lowest balance between the fifth and the last day of the month of March. So make all your deposits before March 5.
regarding your question , I am not sure how will it be calculated . But i think the interest should be calculated on prorata basis for the first year .
manish
Thanks a lot Manish
IMy first deposit is in March 2008. This amount will be considered as deposit for the financial year of 2007-2008. Am i right.
My second deposit is in Jan 2010. So this will be considered as 2009 -2010 financial year deposit. is it right.
So can i deposit in PPF from April 2010 every month. so it will be considered as deposit for next the financial year April 2010 – Mar 2011
Since i am not clear about the deposit durations. Since deposit in PPF is considered for Tax exemption. is it considered as financial year or calender year.
Always a financial year is considered , So your payment between Apr 2009 – Mar 2010 , will be for year 2009-2010 .
Manish
Manish ji , Please give me answer of my one question if I open a PPF a/c with Rs. 10000/- in Febuary 2010 can i get full interest of the financial year 2009-10 on rs. 100000/-
Sohan
No you can not .. you will get interest for the period your money was in the PPF account thats all .
manish
Manish ji , Please give me answer of my one question if I open a PPF a/c with Rs. 10000/- in Febuary 2010 can i get full interest of the financial year 2009-10 on rs. 100000/-
Sohan,
I think the answer has already been provided by Manish in the previous update , which is..
“No you can not .. you will get interest for the period your money was in the PPF account thats all .”
Hi Manish,
I want to start my ppf account and deposit for year 2010-11. When should I do that to earn max interest ? I thought first week of april, before 5th.
thanks. kudos to you for such an excellent blog.
Abhimanyu
You can open PPF account any time and start depositing any time , interest is calculated monthly for the minimum amount on 5th of everymonth , But the whole interest is deposited at the end in the account . Apr 5th is just a myth
Manish
Dear Manish,
Along with EPF, contributions can also be made to VPF ( Voluntary Provident Fund) , which can add to the retirement fund. Return on investment is same as EPF ( Currently 8.5%), thus giving an edge over PPF.
I am not aware of the rules related to withdrawal of money from VPF. Can you please explain the same?
Anil
Ya you are correct .
Regaring EPF , its again just like a providend fund . but we have different rules for it . I will discuss about the withdrawal rules in full post . Infact i have done that already in one post . look archives .
Manish
I find NSC more flexible, you have an option to use your money starting from the 6th year. Assuming that we take NSC every year for a fixed amount.
With PPF we cannot think about it for 15 yrs.
I have one question though, say i open PPF account today and after 14yrs put 70,000 in it and will i get tax benefit for that amount and would it mature in one year?
Srikanth
Yes , PPF will mature in 15 yrs with whatever amount put have put before, I dont find NSC better because of the low returns (interest is taxable , PPF interest is not)
Manish
Hi, Very helpful incite on PFF and EPF. I have a query – if both the spouse are working, can they have two ppf acounts and hence contribute 70k each towards PPF ?
OR is 70k max for both accounts?
Shiv
Wheather working or not . Does not matter . each one can open PPF account and do 70k in each .
manish
hi Manish,
1st deposit 20000 in 5th march 2008
2nd deposit 2500 in 3rd March 2010
I want to know
1) before which date every month one should deposit money in ppf account , so that it qualifies for interest?
2) if some1 wants to deposit lump sum in March 2010 instead of putting in money every month how much difference in interest(if any ) will it make?
3) can you point to some link which shows how interest is compounded /calculated in a ppf account
Saurabh
All your queries will be solved with : http://blog.investraction.com/2010/01/reader-comment-ppf-interest-calculation.html
Manish
How many PPF accounts can be opened by an individual? If more than one accounts are allowed, then can I deposit Rs70000 in each of the accounts per year or the total deposit should be limited to Rs70000 for all the accounts per year.
Bijoy
A person can open an account for himself and minor child , however total investments in all the PPF account can not cross 70,000
Manish
Hi Manish,
How are you ? Long time since we discussed on this blog.
I have come up with a small issue in my company regarding PF.
They have provided me the option to contribute additional PF (VPF) to the max extent of 88% as 12% is already being deducted.
However, they say that i will not be able to withdraw the VPF as per my wish. i will only be able to withdraw the normal PF amount accumulated.
is it the case everywhere ?
Thanks,
Shantharam
Shantharam
I have no idea about this
Anyone else >?
Manish
Hi Manish ,
Thank you for educating us in making financial decision .
I have recently subscribed to ur site and since I joined I am improving my financial Quotient .
Manish , I would like to know how is investing in PPF is different from investing in FD ?
As I understand , both give us the assured interest over a period of time , interest gets compounded and both are for accumulating money considering long term .
Please advice .
Thanks in advance
Guruprasad SP
Guruprasad
PPF interest is not taxble , FD interest is
PPF is a long term creation tool hence not liquid .. FD as more liquid , you can break it when you want ..
PPF has limits , FD has not ..
Manish
Hi Manish,
As per new DTC (EET), will PPF be gud deal to invest as after all if not today den tomorrow(after 15 years) it going to b taxable ??
I have opened PPF account in last year by keeping this in mind that after 15 year all money will be tax freebut i hesitate to continue add money in ac bcoz of DTC . Pls suggest.
Thanks
Sandie
Sandie
Even if DTC comes , PPF will still be good bet in Debt , as everything will be taxable at maturity , your current decisions should not matter much because after 15 yrs tax will be there, if you dont choose PPF , then what will you choose , is there anything in Debt product which will not be taxable ? i guess no
Manish
Hi,
Lets say If i want to plan my retirement using PPF . I want to open a PPF account lets say for next 35 years (30K will be invested every year) . Will the interset will be calcaulated compunded anluaaly even after 15 years ? Do I need to take my money out after 15 years and need to open a new PPF after 15 years ?
Manish
Interest will be calculated in the same way . Its calculated every month on the 5th . After maturity of 15 yrs, you have to renew it for a block of 5 yrs every time , So after 15 yrs, you again run it for 5 yrs, then at 20 yrs , you again have to renew it for another 5 yrs . Like that . does that answer ?
Manish
Hi
I have a query. My company does give me PF facility. But the management says that to start your own. So how can i convince them that EPF is better than PPF. Kindly let me know the benefit of EPF over PPF
Thanks
Shibu
Shibu
- the benefits are 0.5% extra
- early withdrawal than PPF allowed
- Same contribution from employer
Manish
Dear Manish,
First of all Thanks for such a nice help you have offered to lot of people so far.
My query is as below:
I am leaving my current company after completing five and half years. Principal Balance in my EPF account should be close to 3.25 Laks(without intrest) and I will get a gratuity amount of 1.25 Lakhs. I am starting my own business and want to keep complete EPF balance and gratuity amount strictly for my reitrement. So what are possible options for me?
1. Can I withdraw complete balance+intrest from my EPF account?
2. I read that employers contribution goes to pension scheme? Can you pls provide details on this aspect or refer some links if its already provided by you?
3. It seems like PPF account has got a yearly limit of 70K, so where can I put amount close to 4.5Lakhs for retirement purpose? Is PPF still an option for me?
4. Or can I continue my EPF account without any monthly contribution to it? Would the account still remian active?
5. Can I put my gratuity amount into my EPF account as a one time credit?
Please let me know your comments.
Best Regards,
Pankaj.
Pankaj
1) Yes
2) There is no distinction on where employee and employer contribution will go differently .
3) If you are talking about 4.5 lacs per year , then NPS can be an option , better invest in Balanced funds
4) I dont think so , EPF is mainly for people who are employed somewhere , you need to get “Salary” for that.
5) No , thats not how it works .
Manish
Hi,
Thanks a lot for posting this article………!
I have one doubt here, while opening the PPF a/c interest rate is 8% and in between government reduced the interest rate. In that scenario it would be applicable for only newbie or old PPF holders also.
Shiv
It will be applicable to every one . However the rates will be applicable to only that year .
Manish
Shiv,
One more thing you need to keep in mind while investing in PPF /EPF that is variation of interest rate provided by Govt of India. Every april GOI will decide about the rate they will offer for that financial year in for both the instrument. It’s not fixed.
Hi,
Can you please let me know what is FPF ?
It would be help if you can elaborate more on FPF.
Thank you in advance.
Dear Manish,
which is the best LIC policy for children
child age is 13 yrs
single premium will be paid in (say 2.0 lac)
GG
GiGy
I dont think anyone , Child Education is a long term goal and hence by the law of personal finance , you should be investing in equity , however any endowment policy either LIC or any other company has pure debt plan , over the years the returns they provide is pathetic and hence are of no much use , They violate the basic idea of “long term investing should be done in Equity”
Manish
Does anybody have idea about FPF (af p af) ?
@Hiral,
May be this will help you more
http://jka49.sulekha.com/blog/post/2007/12/pension-schemes-under-the-provident-fund-act-or-how.htm
Dear Sir/Madam,
I have a PPF account in SBI, can I deposit a cheque in favour of my PPF account, if yes please give me the details.
Thanks & regards,
Manohar T.K.
Manohar
I am not sure on it , but it should be possible , check internet
manish
Yes. But you have to go to the bank again after the cheque is en-cashed to receive your proper receipt.
thanks for the info
Manish,
Thanls for all the knowledge on PF account. I want start an account.
1. Should i deposit the amount once in a year or monthly (like sip), in other words will i get the interest monthly / quaterly / annually ?
2.Based on above when should invest during the year, in march or some other month to maximise more ?
Thanks
Hitesh
1) Depends on your comfort , you will get monthly interest calculated .
2) Doesnt matter much , march is good little bit
Manish
Hi Manish,
I wish, I could have found your site much earlier. Started reading your articles for the last 2-3 months, but given a great insights to my personal finance. Thanks to Deepak Shenoy, for referring your article. I have started subscribing to JagoInvestor
I remember, some of my friends recommended to open a PPF account few years back, and I did it Feb 2007. Invested 500 rs and forgot it. Do the PPF accounts gets locked/disabled, if it left inactive for few years? Will there be any charges to reopen my account? Thanks for your valuable time.
Regards
Surabhi
Great to have you on Jagoinvestor . Keep commenting.
You have to pay Rs 50 per year to revive your PPF account, so for 3 yrs you pay Rs 150 as penalty .
manish
i think you have to pay Rs. (500+50)x3 i.e Rs. 1650 in total. 500 per year as minimum deposit and 50 per year as penalty. manish plz clarify in case m wrong here.
Dibya
Yup , you are correct .
Manish
I work in a Public Utility Company, which has its own Trustee based Provident Fund. It pays (currently) 9+% interest per annum of which the income corresponding to 8.5 % is tax free and the tax for the additional amount is deducted at applicable rate from the salary. I heard from somebody who works in a different company with a similar provident fund setup that after normal retirement the money accrued till retirement in the provident fund may be left in the with the trustees earning interest. However the interest is not accrued further and has to be withdrawn regularly.
My question regarding this are as follows:
1) Is this an universal rule or varies with each company trustee?
2) Is the interest paid tax free up to 8.5 % ?
If the answer to the above questions are ‘yes’, then I believe that this scheme surely beats the MIP and SCSS of Indian Post Office.
Would really appreciate, if somebody clarify the same.
Thanking you in anticipation.
Somnath
Somnath
No idea on this . Anyone else ?
Manish
Hi sir,
8 years ago. I worked for couple of companies 1 year each. now the company is close but I contributed my PF in that companies. after that 5 years ago i joined a company and i paying PF. i am not sure weather my present employer has take the PF amount from previous company. is there a away for me to get access like our “bank statement” from PF office for last 8 years.
thanks
You should try to contact EPFO office and let them know your PF account numbers for previous employers , I am not sure if they would be able to find it out just by your name, its your lazyness which can cost you some good amount of money in loss.
Manish
In reply of the below question,
“2. I read that employer’s contribution goes to pension scheme? Can you please provide details on this aspect or refer some links if it’s already provided by you?”
You have said there is no such contribution from Employer…
Just for your info, Employer’s 12% contribution has 2 component out of which approx 37.6% (confirm this from Google) goes to Employees pension scheme, 1995 and hence only 62.4% is accounted in the contribution towards provident fund.
I would sincerely request you not to provide any wrong info as it may create problem for others.
You have been doing a great job and its completely natural that you may not have answer for something. In that case, take the time and gather the info rather then giving wrong info.
Hope you would take it positively.
Ajit
Thanks for the answer , I am not sure where did I gave wrong information , can you point me to that part in the article ?
Manish
Hi Manish,
I have been reading your articles and are all real informative. Thanks for such good information to you and also everyone providing the good quality of QAs in the comments. Few things i wanted help on..
1. After reading your article on why open PPF account early I’m planning to open one. But before doing so I want to know whether is it possible for me to open a PPF account considering I already have an EPF account.
2. Also I might quit job any time and go into higher education so for that case I think it would be better to have a PPF account opened now so that if i dont opt for job later it would be useful, correct me if I am wrong.
3. I want to know is what happens to the EPF account if i quit before 5 years and then later I join job again after few years? can i keep the same account active?
Bijay
1. PPF and EPF are not related , you have PPF anyways
2. PPF has a long lock in period , it would be better to put your money in some thing liquid where you can withdraw anytime , like mutual funds , try debt oriented mutual funds
3. You can transfer the old account or open a new account and still have old account . You can withdraw from your PF account if you are jobless for 3 months
Manish
Thanks. What about interest? Will I get interest for the money when I withdraw it (say I quit at the end of 2 years and i withdraw it after 3 months of quiting job)
Yes
you will get it , EPF puts the interest accumulated every year
Manish
Well i will do.
ok
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