In India, provident funds (PFs) are primarily designed to encourage long-term savings. There are three main types of PFs that serve different groups: General Provident Fund (GPF), Employee Provident Fund (EPF), and Public Provident Fund (PPF). When it comes to the GPF, this fund is specifically for government employees and allows them to save a portion of their salary each month.

On the other hand, the EPF is aimed at private sector employees, where both the employer and employee make monthly contributions. The PPF, however, is open to everyone, regardless of their employment status. It often acts as a savings option for self-employed individuals or those without access to formal retirement savings plans.

It must be noted that each provident fund type has unique features that distinguish them, such as contribution rates, interest rates, and withdrawal conditions. Understanding these differences is important as it help you choose the right provident fund based on your employment type and retirement needs.

In this article let us study the GPF vs. EPF vs. PPF comparison in detail. Also, we will check their eligibility criteria and the available tax exemptions.

The General Provident Fund (GPF) is a savings scheme specifically for government employees in India. Only government sector workers can join this fund. Employees are required to contribute a minimum of 6% of their salary to the GPF every month. This contribution helps to build substantial savings and ensures that government employees have a reliable source of income after they retire.

The GPF is managed by the Department of Pension and Pensioner’s Welfare, which is part of the Ministry of Personnel, Public Grievances, and Pensions. The fund currently offers an interest rate of 7.1%.

What is EPF?

The Employees’ Provident Fund (EPF) is a savings scheme for employees working in the organised sector in India. It is managed by the Employees’ Provident Fund Organisation (EPFO) and provides financial security to employees after retirement.

Legally, companies with 20 or more employees are required to register with the EPF. Under this scheme, both the employee and employer contribute 12% of the employee's basic salary (up to Rs. 15,000) every month.

It must be noted that the employer's contribution is divided into two parts:

• Part I: 8.33% goes into the Employees' Pension Scheme (EPS). This amount provides a pension after 10 years of service.
• Part II: 3.67% goes into the employee's EPF account. This amount helps accumulate a retirement fund.

The EPF offers an interest rate of 8.25% p.a. (as of August 2024) Employees can generally withdraw their EPF savings when they reach the age of 58. However, partial withdrawals are allowed in certain situations like:

• Unemployment
• Medical emergencies, or
• Significant life events such as education or marriage.

This flexibility helps employees manage financial needs throughout their careers. In this way, it allows private sector employees to achieve long-term financial security by providing a pension.

What is PPF

The Public Provident Fund (PPF) is again a government-supported savings scheme in India. It was established in 1968 to encourage long-term savings and provide tax benefits. This scheme is open to everyone, including both employed and self-employed individuals. It does not have restrictions like its counterparts; for example, the General Provident Fund is for government employees, and the Employees’ Provident Fund is for private sector workers.

PPF is managed by the Department of Economic Affairs, which is a part of the Ministry of Finance. Individuals can contribute between Rs. 500 and Rs. 1.5 lakh per year to a PPF account. The interest rate on PPF is 7.1% p.a. (as of August). It allows the savings to grow over time without being affected by taxes.

Furthermore, it must be noted that the PPF has a lock-in period of 15 years. You cannot fully withdraw the invested amount before this period ends. However, premature closure of the account is allowed in special cases (such as medical emergencies or for education expenses), but this comes with a 1% penalty on the interest earned.

After contributing to the PPF for 7 years, account holders can also take out loans up to 50% of the balance available at the end of the 5th year. This loan facility provides some liquidity while still maintaining the benefits of long-term savings.

GPF vs PPF vs EPF

Which one should you choose?

Choosing between GPF, EPF, and PPF depends on your employment status, income level, and long-term financial goals. Here’s a brief guide to help you decide:

• For government employees: If you are a government employee, GPF is a compulsory savings scheme, and you should continue contributing to it. Additionally, you can consider investing in PPF for long-term savings with tax-free returns.
• For private sector employees: If you work in the organized sector, EPF is a mandatory scheme, and you should maximize your contributions to benefit from employer matching. You can also invest in PPF for additional tax benefits and long-term savings.
• For self-employed individuals: If you are self-employed or work in the unorganized sector, PPF is the best option for you. It offers government-backed security, attractive interest rates, and tax benefits.

Conclusion

GPF, EPF, and PPF are essential savings schemes that cater to different segments of the Indian population. While GPF and EPF are compulsory for government and private sector employees, respectively, PPF is a voluntary scheme open to all. Each of these schemes offers unique benefits, and choosing the right one depends on your employment status, financial goals, and risk tolerance.

For government employees, GPF remains a reliable and secure option, while EPF serves as a robust retirement savings plan for private sector employees. PPF, with its broad accessibility and tax benefits, is an excellent choice for self-employed individuals and those looking for a safe, long-term investment.