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Should VPF Be Chosen For Accumulating Retirement Corpus?
VPF or Voluntary Provident Fund which is a contribution from your salary over and above the EPF contribution has the potential to generate tax-free and lucrative returns given the return landscape of other comparable safe debt securities. Few interesting points that favour its lap up by you, if you can afford to contribute some amount in addition to the 12% basic salary and DA that goes towards the EPF. Remember unlike, EPF , in VPF the similar amount is not contributed by the employer.
However, all rules in VPF such as withdrawal, investment, lock-ins, loan etc are similar to EPF
1. 8.55% return proposed for EPF for FY 2017-18:
The reduction in returns by 10 basis points shall not prove to be hefty if you consider subscribing for VPF which yields return at par with EPF. Also, in the current scenario, when the rate cycle is reversing its trend to a higher side, it is likely that in future course the returns on these instruments also go up.
FDs and other small saving schemes also fail to offer such high returns. Even in the current scenario, when rates have been upped for retail and bulk deposits, the rates are below 7% mark barring few new-age banks that offer high returns. PPF and other instruments also offer lower returns of 7.6% for which the rates are decided on the basis of interest rates in the economy every quarter.
2. Sovereign backing and cumulative interest:
Unlike other debt instruments where you may or may not be provided cumulative interest, in EPF or VPF, the contribution gets compounded until maturity.
3. Unlike other safe debt securities rates on EPF or VPF is decided basis their accumulated surplus
So the current higher interest rates in the economy can further bolster the returns from the instrument in future course.
4. EEE tax status of the VPF:
Another attractive feature of this debt instrument in comparison to bank FDs in which interest earnings are taxable in the hands of investor. VPF are tagged with a EEE status which means investment, interest earned and maturity proceeds do not arouse any tax liability.
Further, the investment is eligible for tax deduction upto Rs. 1.5 lakh limit u/s 80C
5. EPFO increasing contribution in equity:
Plus if you feel you lag behind in your returns due to the investment's debt based-investmets, since the year, the organization has been passively investing in equity to yield higher returns for subscriber over time.
6. For non-salaried class SIPs can provide even better returns:
It is to be noted that VPF contribution that can only be made by salaried class and if you are self-employed and have risk-taking appetite, you can actually consider investments in diversified or hybrid mutual funds via SIP route.
