PPF vs VPF vs FD: Know which investment option will be better for you

With rising inflation and a modern lifestyle, people are currently looking to invest in options that give good returns and help them accumulate a hefty amount over time. However, interest rates of investment options offering guaranteed returns have declined over the years. At the same time, the government is offering many such schemes including Sukanya Samriddhi Yojana, PPF, which help you save for your retirement. By investing in these products, you can get a guaranteed return on your savings.

Talking about bank FDs, it was considered a popular investment option in India, but interest rates on FDs have come down significantly for some time. However, other investment options like PPF and NPS have also gained popularity over the years. With an interest rate of over eight per cent, the VPF remains an attractive option for salaried employees. VPF is an extension of the Employees Provident Fund (EPF).

Public Provident Fund (PPF)

PPF was introduced as a saving instrument in 1968 by the National Savings Institute of the Ministry of Finance. The scheme comes with income tax benefits. In PPF, you have to invest a minimum of Rs 500 in a financial year to keep the account active. At the same time, you can invest a maximum of 1.5 lakh rupees in PPF in a financial year. PPF comes with a lock-in period of 15 years. The interest rate in the scheme for the quarter ending March 2021 is 7.1 percent. The PPF offers an income tax exemption of up to Rs 1.5 lakh in a financial year under Section 80C of the Income Tax Act, 1961. The interest earned in this scheme is also completely tax-free.

Voluntary Provident Fund (VPF)

The VPF is a voluntary contribution, in addition to the statutory EPF contribution. Only salaried employees, who are members of EPFO, can invest in VPF. Employees cannot contribute more than 12 percent of their basic salary to the EPF. If employees want to contribute more than 12 percent of their basic salary, then under VPF. The current interest rate on VPF is 8.50 percent. Contribution to VPF is eligible for tax exemption under Section 80C. Like EPF, VPF also comes with EEE status. That is, the investment amount, interest amount and maturity amount are all tax-free.

Bank FD

FDs are offered by banks and non-banking financial companies (NBFCs). Bank FD is an excellent means of safe savings. In this you can choose the investment amount and duration as per your wish. Bank FDs cannot be broken before the maturity date, but in case of excessive need, the amount of FD can be withdrawn by filling the penalty. Different banks offer different interest rates on FDs. Small finance banks offer relatively higher rates of interest on FDs.