Should You Invest In a Voluntary Provident Fund?

Thu, 02 Sep 2021 05:26:05 +0000

Voluntary Provident Fund (VPF) is an extension of EPF, employee provident fund. As the name suggests, an employee can voluntarily decide to contribute to this fund apart from his/her regular EPF account. This contribution will be over and above the regular monthly EPF contribution from their salaries. Every employee contributes 12% of their basic salary and if they decide to contribute to VPF it would be separate from their EPF contribution. It carries the same interest rate as EPF, i.e. 8.5%.

This scheme is for people who already have an EPF account. Let’s dive deep to get an insight into Voluntary Provident Fund (VPF).

Why is VPF So Attractive?

Among the many options a salaried person has for saving money, the Employee Provident Fund gives the highest interest rate of 8.5 %. The VPF gives the same interest rate as EPF. By taking VPF, anyone can voluntarily contribute to their EPF account and allow their deposit to grow with an interest rate of 8.5 %.

Now, you must be thinking about how much an individual can contribute to VPF? one can contribute to VPF as much as they want and this could extend up to 100% of the basic salary and dearness allowance.

What are the Advantages Of VPF?

It is better than any other saving scheme as it offers an interest rate of 8.5 %, more than any other government-guaranteed saving instrument.
It is tax-free, the same as EPF.
Contribution up to 1.5 lakhs in a year and the interest incurred does not come under the tax.
EPF is considered a risk free and high return saving scheme. The VPF is also the same.

What Do You Need to Do For Opening a VPF?

Opening VPF is easy. The employee has to approach the organization and submit an application for additional contribution in VPF. After that, the employee has to fill a registration form. The extra contribution will get deposited in the same EPF account.

How Can You Exit From VPF?

Just EPF, VPF also has terms and conditions for the amount withdrawing. The terms and conditions for exit from VPF are:

The account also has a locking period. Withdrawing of the amount within five years of account opening will attract income tax.
After the employee resigns or retires, the investor receives the maturity amount. In case of the untimely death of the investor, the nominee gets the accumulated corpus.
Just like EPF, VPF is also a future saving plan, however, in an emergency, premature withdrawal of the amount is possible. The investor can partially withdraw from VPF to address the exceptional situation, such as higher education, medical emergency, children marriage, house purchase, home renovation. You can read this article https://www.thebuyt.com/can-you-pre-maturely-withdraw-money-from-epf-account/.

Points to Note About VPF

The employer’s contribution in EPF will remain the same, i.e. 12%.
The investor could neither terminate nor discontinue the account before the five-year tenure.

Conclusion – VPF is a safe investment option for those looking for a higher interest rate on their saving. The interest rate of EPF/VPF is the highest among all saving schemes. Even the mutual fund does not offer such a lucrative interest rate.

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