Voluntary Provident Fund (VPF) vs Public Provident Fund (PPF): Know the Better One

Updated on: Jan 13th, 2022 - 3:51:47 AM

5 min read

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The Government of India will pay the employer and employee contribution to EPF account of employees for another three months from June to August 2020. The benefit is for establishments with up to 100 employees and where 90% of those employees draw a salary of less than Rs 15,000 per month. The contribution to EPF is reduced to 10% from 12% for non-government organisations.

Both Voluntary Provident Fund (VPF) and Public Provident Fund (PPF) are popular tax-saving options covered under Section 80C of the Income Tax Act, 1961. Most individuals are not sure as to which of the two is a better option. We have decoded the same in this article by covering the following:

What is VPF?

Voluntary Provident Fund (VPF) is an extension of the Employees’ Provident Fund (EPF). Under EPF, the employees working in the eligible organisations should mandatorily contribute 12% of their basic salary and the employer too will contribute with the matching amount.

The EPF contributions are locked-in until the employee retires or is eligible under a certain condition to make a premature withdrawal. If the employees want to contribute more than the minimum requirement, then they can do so under the Voluntary Provident Fund (VPF) provisions. However, the employer’s contribution would still remain the same.

The VPF contributions are deposited into the EPF account of the employee and earn the same rate of interest as that of the EPF contributions. There is no capping on the VPF contributions.

What is PPF?

Public Provident Fund (PPF) is one of the most popular tax-saving options under Section 80C provisions. All resident Indians, including those working in the informal sector and unemployed, can invest in PPF. Taxpayers can claim tax deductions of up to Rs 1,50,000 a year by investing in PPF. The minimum investment of Rs 500 a year should be made in a year. One cannot invest more than Rs 1,50,000 a year. The returns offered by PPF accounts are fixed and are backed by sovereign guarantees.

Comparison of VPF With PPF

The following table gives the comparison of VPF with PPF:

Parameter Voluntary Provident Fund Public Provident Fund
Who can invest? Employees working in the eligible organisations All resident Indian citizens
Lock-in period Locked-in until the employee retires or is meeting a certain condition to make a premature withdrawal Locked-in mandatorily for a period of 15 years. Withdrawals are allowed after seven years
Who is contributing? Employee alone (employer’s contribution is restricted to the minimum requirement) Account holder
Extension beyond maturity Not possible Can be extended in a block of 5 years
Loan Facility Available after 6 years Not available, however, you can make premature withdrawals considering you meet some conditions
Rate of interest Higher (it is currently 8.5%) Lower (it is currently 7.1%)

Who should Invest in VPF?

Employees working in eligible organisations can invest in VPF. Therefore, it is advisable for all eligible individuals to make use of the provisions of VPF. They don’t have to look for other tax-saving investments if they make full utilisation of the Section 80C limit. Saving taxes with VPF is simple and straightforward as the contributions for it are deducted directly from the salary by the employers. This alleviates the need for employees to open a separate account as they should in the case of PPF.

Who Should Invest in PPF?

Self-employed, those working in the informal sector, housewives and all other individuals that are not eligible for EPF should invest in PPF. Also, if someone is looking for a long-term investment plan can invest in PPF as the lock-in period is 15 years. Those individuals who have exhausted their Section 80C limit may consider PPF as it is a government-backed scheme which offers guaranteed returns in the range of 7.0% to 8.0% per year.


Both VPF and PPF are excellent tax-saving options. They are backed by the sovereign guarantees and offer a fixed rate of return on the investments.

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