As a working employee, savings are an important part of your life. You must save some percentage of your salary and invest it so that you can take care of your needs post retirement. Some of the investment products in which you can invest if you have a low appetite for risk are Employee Provident Fund (EPF), Public Provident Fund (PPF), and Voluntary Provident Fund (VPF).
However, before you decide to invest in any of these products, you must know what these products are, what they offer, and how each of them can be suitable for you.
What is an Employee Provident Fund?
A company can comply with the rules of an Employee Provident Fund (EPF) if it has 20 employees and above. Under this scheme, the employer is supposed to contribute 12% of your monthly salary to the scheme so that you can take care of your financial needs post retirement. Apart from that, the employer also contributes to your PF account from their own pocket. This contribution is mentioned in your CTC letter. You can then withdraw a certain percentage of your contribution from your EPF account and get the rest as pension post retirement. Bankbazaar provides all the information about EPF Balance.
What is a Voluntary Provident Fund?
As an employee, if you wish to contribute more than 12% to your existing PPF account, you can do so. You can contribute up to 100% of your salary including the dearness allowance. It is important to remember that since you will be making the contributions out of your own pocket, it will be considered as an investment and will be taxable.
You can withdraw a certain percentage of your contribution from your EPF/VPF account in case of cash crunch. If you stay unemployed for two months, you can withdraw 75% of the total contribution made by you so that you can take care of your financial needs. You can enjoy the benefits of investing in Voluntary Provident Fund (VPF) after your retirement.
What is a Public Provident Fund?
Public Provident Fund (PPF) is a government-sponsored investment product which was introduced to allow people belonging to the unorganised sector to invest and take care of their post-retirement needs. However, anyone regardless of whether the person works in an unorganised sector or not can open a PPF account and contribute a set amount on a monthly basis which would ultimately help in taking care of their needs post retirement.
If you are looking to open a PPF account, you can do so with any banks in India. The minimum and maximum contribution that you can make is Rs.500 and Rs.1.5 lakh on a monthly basis. Not only do you get attractive returns, but you also get to save taxes on investing in this scheme.
Comparing EPF, PPF, and VPF
Given below in the table are the differences between these three products:
|
|
EPF | PPF | VPF |
| Investment Period | 15 years | Up to retirement or resignation from the company | Up to retirement or resignation from the company |
| The contribution made by the employee | NA | Voluntary | 12% |
| The contribution made by the employer | NA | NA | 12% |
| Interest rate | 8.65% | 8% | 8.65% |
| Availability of loan | You can withdraw 50% of your contributions after 6 years | Partial withdrawal | Partial withdrawal |
| Tax benefits | Up to Rs.1 lakh per year | Up to Rs.1 lakh per year |
Up to Rs.1 lakh per year |
These are some of the things that you must know about these three investment plans. If you are a working professional, then it becomes mandatory for your employer to make you a part of the EPF scheme. However, based on your future goals, salary, and your investment plans, you can also invest in PPF and VPF.
It is equally important that you evaluate your insurance needs and properly understand how it can be beneficial to you to invest in these three investment schemes. You can choose to invest in all the three investment products and enjoy its benefits after you have retired.
In case of a cash crunch, you can withdraw a certain sum of money so that you can take care of your financial needs. In case you are unemployed for a period of two months and above, you can withdraw a certain percentage of your contribution. You can also enjoy tax benefits, and hence, due to these reasons, it is a very good idea to invest in these types of investment products.
