The principal primary concern that separates Servo Drives from VFD is the encoder. While Servo Drives can’t work without an encoder for electronic commutation, a VFD can turn out entirely great without it.

1. A servo drive is an integral part of a servo
system that consists of a motor, a controller, a
feedback device, and of course – a servo drive.
In a laymans language a servo drive is a part of
the servo system that receives a particular
command from a control system, amplifies it,
and transmits the current to a servo motor in the
system. The servo motor produces a motion,
tailored to the command it has received. The
command signal usually represents some of the
physical variables such as torque, velocity, and
the desired position.
The servo motor is equipped with a sensor(
Encoder ) that reads the current position of the
motor and reports it back to the servo drive.
When the feedback is received, a servo drive
compares the motor status and position with
the commanded variables. If there’s a deviation
from the given commands, the servo drive alters
the frequency, voltage or any other variable to
correct the deviations.
A Variable-Frequency Drive ( VFD) is also a motor control unit, but it works in
a different way than a servo drive.
The VFD is a type of motor controller that works in conjunction with an
electric motor by varying the variables such as voltage and frequency
supplied to the electric motor. While a servo drive needs a command signal
given to the motor in order to compare the real and desired position of the
motor, a VFD directly controls the voltage and frequency supplied to the
motor. VFDs are also known by other names such as AC drive, adjustable-
frequency drive, inverter( mainly a Japnese term).
When it comes to the motor’s speed (RPM), a variable that is directly related
is the frequency in Hz. The lower the frequency is, the lower the speed of the
motor is, and vice versa. Sometimes, the electric motor doesn’t need to run at
full speed and VFD can come in handy since it allows you to manipulate the
frequency and voltage. If you don’t need full speed, you can decrease the
frequency and voltage of the motor to suit your needs. This will also save the
electric motor from potential malfunction and extend its life.
Generally, Variable-Frequency Drives are used for reducing energy
consumption thus reducing the energy costs of an electric motor. These
motor proved to be very good when it comes to tight process control and are
used everywhere from small appliances to large electronic systems, for
controlling electric motors.

2. A servo drive system, as opposed to a variable frequency drive (VFD) or AC motor drive , has the ability to
position with extreme precision and repeatability. While a VFD can be configured for position control, it cannot
attain the exactness of a servo drive. VFDs are also available in much higher horsepower ranges than servo's.
Selection of external feedback sensors such as encoders, resolvers, linear position sensors, etc., required to
achieve closed-loop control and each having its own inherent precision, will enable the system accuracy
accordingly. Your application requirements will always dictate which system configuration will give you the best
results!
Many of today's VFDs are fully capable of doing positioning when using encoder feedback; as with many other
things, the lines have become blurred. What separates servo motor from induction motors is their low inertia
and their ability to accelerate and decelerate much faster, the trick is to decide when you need full servo
performance.
Using variable frequency drive (VFD) for the servo application is quite possible, provided the application is less demanding in
critical positioning purpose.
Servo motors have different information on motor control, it includes rotor positioning feedback, VECTOR mode, requires motor
recognition and not necessary and encoder for rotor feedback, it estimates it through output current. (which includes V/F also)
Numerical Commands can set V/F setpoint on power modules usually.
When you have VECTOR and Torque control, you may have a torque setpoint, instead of speed setpoint, if there's no load on this
mode, the motor speeds up fast and may damage mechanics. If you control Torque, with the same power, speed becomes
uncontrollable, some applications combine torque and speed setpoints for different frequency / torque ranges.
The problem here is that we are trying to define a specific answer using very general terms. A servo motor can be an induction
servo, a brushless servo, a reluctance servo a dc servo - each of these can be either linear or rotary and can come with a variety of
feedback such as tachometer, resolver of various pole counts, incremental or absolute encoders discreet or serial interface with
different bus options, laser feedback, halls etc.
Then you come to the term variable frequency drive. Brushless servo amplifiers are also vfds. Do standard inverters have proper
control of induction, and brushless motors. Some allow for a software switch, some allow for a firmware download, some don't.
Will inverters accept feedback - some have it built in, most that allow it do so by option cards, many do not.