A provident fund is a savings scheme that is designed to set up a reliable retirement corpus. In India, individuals and organisations use several types of provident funds to leverage retirement benefits. Some of the prominent ones include the General Provident Fund (GPF) and Public Provident Fund (PPF).
If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure.
A general provident fund is a savings scheme that is made available to government employees. Under this scheme, employees can contribute a part of the wages on a regular basis until they exit the government organisation. On retirement, the recruiter transfers the accumulated amount in the general provident fund account to the employee.
A public provident fund is a government-backed savings scheme that is designed to provide individuals with a safe and secure post-retirement life. As the name suggests, this plan is available to the general public—be it a serviceman, a businessman, a professional, or a self-employed individual. Under this plan, a deposit of at least Rs. 500 is required every fiscal year, with a maximum limit of Rs. 1.5 lakh per year. Alongside retirement savings, individuals can claim income tax benefits on the amount they invest in the account.
PPF account for minors is currently the most popular long-term investment scheme sponsored by the Indian government. The minor’s parents or guardians can open it on their behalf.
Parameters |
GPF |
PPF |
Who is eligible to invest? |
This programme is available to government workers who started their careers before 1st January 2004. It can include the following:
|
This plan is available to any Indian citizen with domicile credentials. It can include the following:
|
How much investment must be made? |
Employee contribution: 6% of the salary and emoluments Government contribution: 6% of the employee's salary |
Minimum amount: Rs. 500 per year Maximum amount: Rs. 1.5 lakh per year Maximum number of deposits: Unlimited |
What is the current rate of interest? |
7.1% |
7.1% |
What are the available loan options? |
Loan against GPF can be availed at any time during a government employee's career. There is no upper or lower limit. |
Loans are available between the third and sixth fiscal years of opening the account, up to a maximum of 25% of the balance available two years before the loan application. |
What is the maturity tenure? |
The fund matures when the government worker reaches retirement or superannuation. |
The fund matures in 15 years. However, it can be extended for another five years. |
Is it tax-effective? |
Contributions to GPF are eligible for tax exemptions under Section 80C of the ITA. Moreover, interest earned and withdrawals at the time of retirement are also tax-free. |
Contributions made to a PPF account are eligible for tax deductions under Section 80C of the ITA, enabling investors to claim deductions of up to Rs. 1.5 lakh annually. Moreover, the maturity proceeds of a PPF account, which includes the principal fund and accumulated interest, are fully exempt from taxation. |
What is the premature closure eligibility? |
A government worker can make a premature closure of the account upon leaving the government service. |
An employee can make a premature closure of the account after 5 years on pre-defined grounds, including medical emergency, children’s higher education, marriage and buying a house or consumer durables. |
If you are looking to diversify your investments portfolio, Fixed Deposit (FD) can be a good choice. FD provide a fixed interest rate throughout the investment period. Interest rate on FDs does not change with market fluctuations. NBFC’s like Bajaj Finance offers one of the highest rate of up to 8.65% p.a. on their Fixed Deposits.
Comparison between GPF vs. PPF
Both these provident funds promote the practice of savings when an individual has a regular source of income. They help to save sufficient funds that can be used to meet expenses when one is out of income. However, there are several differences between GPF vs. PPF that one must duly consider
1. Interest rates
- PPF: The interest rate on PPF contributions is declared by the government quarterly. It is generally higher than prevailing fixed deposit rates, offering potentially better returns.
- GPF: Similar to PPF, GPF investments are considered safe due to government backing, and the interest rate is also higher than prevalent fixed deposit rates.
2. Tax benefits:
Both GPF and PPF offer tax benefits on contributions, interest earned, and maturity amount under Section 80C of the Income Tax Act, 1961.
3. Subscription
- PPF: Investing in PPF is a voluntary decision open to any Indian citizen or resident.
- GPF: In contrast, subscribing to GPF is mandatory for all eligible government employees. It involves deductions from their salary at a fixed rate.
4. Lock-in period:
- GPF: The lock-in period for GPF depends on the duration of your government service. You can withdraw the full amount upon retirement or on resignation after completing five years of service.
- PPF: PPF has a fixed lock-in period of 15 years. However, you can extend it in blocks of 5 years after the initial 15 years. Partial withdrawals are allowed under certain conditions after the initial 5 years of investment.
Conclusion
A general provident fund is similar to a public provident fund. They both serve long-term savings goals and financial stability, each with unique features in terms of eligibility, contributions, interest rates, and withdrawal conditions. Moreover, these strategies ensure that your immediate financial needs are addressed without the need for expensive bank loans. Such benefits have made savings programmes among the most heavily invested schemes in India.
Choosing between GPF vs. PPF is crucial to smart financial planning. Online platforms can be of great assistance if you want to compare GPF vs. PPF saving schemes or make online PPF payments. It is crucial that you properly understand all of your choices before making a well-informed and calculated decision.
