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Should I Invest In VPF To Secure My Retirement?


You can decide for the VPF Voluntary Provident Fund if you are searching for a long-term investment opportunity with good yields and a low potential risk. This scheme, operated by the Government of India, provides participants with tax benefits. The Voluntary Provident Fund (VPF) is a scheme coming under the conventional savings scheme of the Provident Fund. That being said, under the VPF scheme, the contributor agrees, on a monthly basis, on the amount of the fixed contribution to the scheme. VPS enables you to deposit more in your EPF account, and it's voluntary, as the title implies. The scheme does not comprise the required 12 percent made by the employee towards EPF.

A glance at VPF

A glance at VPF

Currently, as your contribution to the EPF, your employer subtracts 12 percent from your basic income per month. Employers even contribute 12 percent towards your EPF account, of which 8.33 percent falls to the Employers' Pension Fund (subject to gross basic salary of Rs 15,000 or Rs 1,250). Under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, it is the statutory provision. Your retirement corpus makes up the monthly contributions, combined with interest accrued over the years. Towards VPF can contribute up to 100% of their basic salary+DA (dearness allowance). The interest rate of the VPF is identical to the scheme of the EPF.

It is not compulsory that employers or employees contribute towards the scheme. The scheme, though, has a 5-year lock-in term. The interest rate of the VPF is determined on an annual basis by the Government of India. Although the VPF is an extension of the EPF, only salaried employees who earn salaries in their salary accounts on a monthly basis are liable for investment in the initiative. Your additional contribution will give you the same rate that the EPFO annually declares for the EPF schemes, as well as the same tax deductions. Comparably, guidelines on withdrawal will exist though. Therefore, not only will the contribution count for deduction under section 80C, the interest accrued will also be tax-free over the investment period. After all, it is an extension of the EPF scheme-tax exempt of EEE classification at investment, accumulation and maturity levels.

Key benefits of VPF

Key benefits of VPF

As VPF falls under the category of Exempt-Exempt-Exempt (EEE). Employees can therefore reap tax savings and, in the long term, earn a substantial sum of money by contributing to the VPF. The key advantages of a VPF account are described below:

  • There are no uncertainties inherent in participating in the scheme as the scheme is run by the Indian Government. It is very worth it to go for a VPF portfolio relative to other long-term investing opportunities offered by private entities.
  • The rate of interest is 8.50 percent p.a. under the VPF scheme. The interest provided by the contributions is also tax-deductible.
  • The procedure for opening a VPF account is quite clear. Through submitting the registration form, employees can notify their employer's accounting department and request them to open a VPF account. The existing EPF account will also serve as an account for the VPF.
  • In the event that people change their employers, it is very easy for them to switch the old company's VPF account to the existing one.
How can I open a VPF account?

How can I open a VPF account?

Via your employer, you can instantly begin contributing towards VPF. No KYC specifications have to be met. No KYC specifications have to be met. Every month, you can opt to start, end, raise or reduce your VPF contributions. That being said, only at the beginning of the financial year do certain employers have a period to make these adjustments. Thus, you need your employer to confirm with you. VPF will automatically close the range if your EPF investment is not worthy of exceeding the Rs 1.5-lakh section 80C threshold.

How can I withdraw money from my VPF account?

How can I withdraw money from my VPF account?

Withdrawing money from a VPF account could be helpful in the case of financial obligations due to medical crises. Employees are required to fill out Form-31 and have a written application form for VPF withdrawal. Employees will be eligible to have the Form-31 from the Human Resource (HR) team of their company or from the government site. The relevant documentation must be submitted, namely employee details such as PF number, postal address and bank details. There must also be a cancelled cheque submitted. Don't forget that all documents along with the application form must be self-attested before submitting. Employees are permitted to withdraw from the VPF account in case of any unexpected financial crises. Here are some of the possible reasons:

  • If the account holder's or his/her children's medical costs are to be met.
  • For the higher education of children or for marriage purpose of the account holder.
  • To purchase new land or a property, or to build a house.
Interest rate for VPF

Interest rate for VPF

The interest rate is fixed by the Indian Government and is updated annually. For FY 2019-2020, the interest rate is 8.50 percent p.a. Because of its high rate of interest and tax incentives, investments in a VPF account are attractive. A summary of VPF interest rates is provided below:

Year ROI in % p.a.
2019-2020 8.50
2018-2019 8.65
2017-2018 8.55
2016-2017 8.80
2015-2016 8.80
2014-2015 8.75
2013-2014 8.75
Our take

Our take

Apart from being stable, the interest rate generally announced by the EPFO is higher than that of many other debt investments, and also it is guaranteed by the central government. Your VPF investments can raise your retirement portfolio substantially owing to the impact of compounding. VPF is one of the strongest debt resources that suits moderate investors searching for options for secure retirement funds if you choose to contribute more to ensure a stable retirement life. Over the years, the interest received on your contribution compounds, culminating in a huge retirement pool. A VPF account is best tailored to all such salaried persons willing to invest and reduce their tax liabilities in a long-term financial resource. For individuals reaching near to their retirement and seeking a secure and robust alternative for pension funds, a VPF account is undoubtedly a smart and secure bet.

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