The Public Provident Fund (PPF) and Variable Provident Fund (VPF) are simultaneously quite similar and completely different. Anyone can open a PPF account for long term investments. But to put one’s money in VPF, one needs a job in an organisation that has Employees Provident Fund (EPF). If one wants to invest money in VPF over and above the amount that he/she invests in EPF, one can start a VPF account.
How are interest rates set?
The point to remember is that while the finance ministry sets the rate of interest in PPF at the beginning of every quarter, the rate of interest in VPF is the same as that in EPF. It is set by the Employees Provident Fund Organisation (EPFO) once every year.
While PPF now carries an interest rate of 7.1%, the VPF rate was 8.25% for FY24.
PPF Calculator
PPF has a lock-in period of 15 years. So, let’s make the calculation on the basis of 15 years for the sake of uniformity.
What PPF would give you
If you invest Rs 10,000 every month in a PPF account for 15 years, the maturity amount will be Rs 32,54,567 (Rs 32.34 lakh). Out of this amount your nominal investment is Rs 18 lakh and the interest component is Rs 14,54,567 (Rs 14.54 lakh).
The assumption that we have made here is that the interest rate in PPF remains 7.1% throughout this period.
VPF calculator
Let’s turn to VPF calculator now.
Assume you are investing the same amount every month in VPF as you were doing in PPF, which is Rs 10,000. Let’s invest this for 15 years which is also the lock-in period for PPF.
In this case, VPF will be giving a total return of Rs 35,49,705 (Rs 35.49 lakh). Clearly, this amount is significantly higher than what PPF generates for the same period. The difference is Rs 2,95,138 (Rs 2.95 lakh).
We have assumed the VPF interest rate to be 8.1.
Needless to say, the difference between PPF and VPF will increase as one chooses a longer period of investment, assuming the rates of interest in the two instruments remain the same throughout the period.
Both VPF and PPF calculators are available free online. One can easily type in one’s investment figures and calculate the principal invested, interest amount and total maturity amount that will be generated at the end of a chosen period.
PPF and VPF are two of the safest investments for the common people of India. They have been trusted for generations for their predictable returns as well. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
