Understanding the Key Differences: VPF vs PPF Investments

Pallav Mandal
By -

In the dynamic landscape of personal finance, understanding the nuances of investment tools is paramount. Two such instruments that often find themselves under the scrutiny of investors are the Voluntary Provident Fund (VPF) and the Public Provident Fund (PPF). Both offer avenues for disciplined savings and wealth creation, yet they differ in several aspects. In this exploration, we delve into the distinctions between VPF and PPF, shedding light on their features, advantages, and considerations.

Voluntary Provident Fund (VPF)

The Voluntary Provident Fund, an extension of the Employee Provident Fund (EPF), allows employees to contribute more than the mandated 12% of their basic salary towards their provident fund. While the EPF is mandatory, the VPF offers a voluntary option for those who wish to increase their retirement savings. The contribution to VPF earns the same interest rate as the EPF and enjoys the benefits of tax exemption under Section 80C.

Public Provident Fund (PPF)

The Public Provident Fund, on the other hand, is a long-term investment scheme offered by the Indian government. Open to both employed and self-employed individuals, the PPF provides a fixed interest rate along with tax benefits. It has a lock-in period of 15 years, making it an attractive option for those seeking secure and tax-efficient savings.

Read also :Advantages and Disadvantages of PPF (Public Provident Fund)

Differentiating Factors

1. Employment Affiliation:

VPF: Exclusive to salaried employees, the VPF is an extension of the EPF and is directly linked to one's employment.

PPF: Open to all, irrespective of employment status, the PPF caters to a broader demographic, including the self-employed.

2. Interest Rates:

VPF: The interest rate on VPF aligns with that of the EPF and is subject to periodic revisions.

PPF: The PPF, being a government-backed scheme, offers a fixed interest rate, declared annually.


3. Contributions:

VPF: Contributions are voluntary and can exceed the mandated 12% of the basic salary. The entire contribution is eligible for tax benefits under Section 80C.

PPF: Contributions to the PPF are capped at a specified limit per financial year (recently Rs. 1.5 lakh). This, too, qualifies for tax exemptions under Section 80C.

4. Withdrawals:

VPF: Withdrawals from VPF can be made during employment, but conditions and limits may apply.

PPF: While partial withdrawals are allowed after the sixth year, the PPF has a lock-in period of 15 years.

Advantages and Considerations:

Advantages of VPF:

Higher Contribution Potential: VPF allows individuals to contribute more than the mandatory EPF percentage, enabling higher savings.

Tax Benefits: Contributions made to VPF are eligible for tax deductions under Section 80C, making it a tax-efficient savings avenue.

Employer Match: In some cases, employers may match the increased contributions to VPF, amplifying the overall savings.

Advantages of PPF:

Universal Accessibility: PPF is open to all, including the self-employed, providing a secure investment option for a broader demographic.

Fixed Interest Rate: The PPF offers a stable interest rate, shielding investors from market fluctuations.

Tax-Free Returns: Both the principal and interest earned on PPF are exempt from tax, enhancing the overall tax efficiency of the scheme.

Considerations for VPF:

Employment Dependency: VPF is directly tied to employment, and withdrawals during the employment period may be subject to specific conditions. 

Interest Rate Variability: The interest rate on VPF is subject to periodic revisions and may vary depending on economic conditions.

Considerations for PPF:

Lock-in Period: The 15-year lock-in period of PPF may not suit those seeking more flexible investment options.

Contribution Limits: PPF has an annual contribution limit, restricting higher income individuals from utilizing it to its full potential.



In the spectrum of personal finance, the choice between VPF and PPF depends on various factors, including employment status, income levels, and preferences for flexibility. While VPF offers an opportunity for increased contributions for salaried individuals, PPF stands out as a universal, secure investment avenue. It's crucial for investors to align their choice with their financial goals and risk tolerance.

As with any financial decision, seeking professional advice is prudent. The landscape of investments is nuanced, and understanding the intricacies of VPF and PPF can pave the way for a more informed and strategic approach to wealth creation.


Post a Comment


Post a Comment (0)