Public Provident Fund (PPF) and Voluntary Provident Fund (VPF) are financial instruments offered by government to help one save for retirement. By investing in these schemes, an investor can receive assured returns.

Live TV

Loading...

However, before investing in these schemes, it is important to understand what works better for whom. To choose the better option on the basis of returns, one need to first understand the criteria, say financial experts.

(Also read:

Investment options you should remember to lead a tension-free retired life)

Even though the features of the PPF and VPF seem similar, the biggest difference between PPF and VPF is that PPF can also be availed by self-employed people and employees from unorganised sectors, while VPF is only available for salaried individuals.

“VPF is just an extension of EPF and hence, investors can opt for VPF only if they have an EPF account. Besides offering an EEE tax benefit (which is available in PPF as well), VPF currently offers a return of 8.5 percent,” explains Pranjal Kamra, chief executive officer, Finology.

The rate of interest in PPF, on the other hand, is currently 7.1 percent. This means VPF offers 1.4 percent extra returns in addition to the tax benefits.

(Also read: How to maximize your mutual fund SIP returns)

"VPF suits salaried people, for marginally higher interest rates,” suggests Joydeep Sen, founder, Wiseinvestor.

Naveen Kukreja, chief executive officer and co-founder, Paisabazaar seconds Sen's view.

"VPF, an extension of EPF, has usually earned higher interest rates than PPF and most of the other fixed income securities covered by the sovereign guarantee. Therefore, employees with EPF accounts looking for higher returns as well as sovereign guarantee should prefer investing in VPF than in PPF," he explains.

Nevertheless, the investment horizon of the schemes also needs to be considered.

PPF has a lock-in period of 15 years, which can be increased further.

"For someone who is aiming at enhancing the retirement corpus, VPF is a better option as it offers extra returns along with a long-term compounding effect benefit on the money. But, if investors don’t wish to invest for too long, then PPF might be a better option as it matures in 15 years," adds Kamra.

(Also read: National Pension System: Know about eligibility, premature withdrawal, tax benefits, other details)

VPF corpus matures post retirement only and pre-matured withdrawal is offered only in select circumstances.

"Investors looking to open VPF can instruct their office accounts/HR department. A fixed amount, decided by investors, will be deducted from their salary every month. This ensures investment discipline while making savings easy," adds Zafar Imam, Lead, OPPO Kash.

First Published:May 20, 2020 9:05 PM IST