New Delhi. Every salaried employee has heard the name of PF i.e. Provident Fund. Every month, 12% of your basic salary is deposited in the Employees Provident Fund i.e. EPF and the company also adds the same amount. But do you know that there is also an option in this PF system in which you can increase your savings manifold without any risk. This is Voluntary Provident Fund (VPF). This is an extension of EPF, but people are not as aware about it as it should be.
Actually, VPF has been designed for those salaried employees who want to increase their safe and tax-free savings every month. If you wish, apart from the mandatory 12% of EPF, you can make additional contribution up to 100% of your basic salary and DA in VPF. The biggest feature is that the interest on VPF is the same as that on EPF and this rate is decided by the government every year, which means there is no market risk of any kind.
What is VPF and how does it work?
VPF is very easy to understand. It is not treated as a separate account, rather your entire contribution – be it EPF or VPF – is deposited in a single PF account. No need to open any additional account, fill separate forms or stand in line at the bank. You simply send an email or request to your HR that you want to increase voluntary contribution to EPF. This deduction starts appearing in your pay slip from the next month, that is, like PF, the money gets automatically deducted from your salary and deposited.
Why is VPF becoming the favorite of salaried people?
1. Higher interest than bank FD- Today, bank FD interest rates often remain between 6–7%. At the same time, the interest rate of VPF/EPF is sometimes higher and it is also compounded every year. In the long run, this compounding increases your PF balance rapidly. It is a reliable, stable and continuously growing investment for salaried people.
2. Triple Tax Benefit (EEE Model)- The biggest strength of VPF is its tax exemption. No tax on your deposited amount. Interest received up to a certain limit is also tax-free. If the contribution is more than 5 years, the maturity amount is completely tax-free. Nowadays, such huge tax benefits are available in very few schemes.
3. Government Guarantee- EPF/VPF runs under government supervision. Neither the ups and downs of the stock market affect them. There is no risk of bank collapse like FD. Your capital is safe and the interest rate remains fixed for the whole year.
4. Investment without hassle- In VPF, there is no need to look at the app or use your brain. Every month the money is deducted from the salary and deposited automatically.
5. Best for retirement planning – The real benefits of VPF are available in the long term. If you invest continuously for 10-20 years, your PF balance can change from lakhs to crores.
Why is it so easy to start a VPF?
To start VPF, no bank visit, no long form, no KYC is required again. Just tell HR that you want additional contribution to EPF. For example, if your basic + DA is Rs 30,000 and you want to contribute 20% instead of 12%, the change is reflected from the next month with just one request. If you want, you can increase or decrease it even in the middle of the year.
What precautions should be taken before investing in VPF?
1. Take-home salary will be less
The more you contribute, the less salary you get.
So first check your budget-
Household expenses, EMI, insurance, emergency fund should not be affected.
2. Withdrawals are bound by EPF rules
The rules for withdrawal of VPF are the same as EPF.
Full withdrawal on leaving job/retirement.
Partial withdrawal for medical, education, purchase of house etc. – but documentation is required.
Therefore it is good for those who do not need immediate access to the money.
3. Effective only for long term
VPF is right for those who
They have the mindset of “invest today and get a big corpus after 10-20 years”.
This scheme is not for those who withdraw money frequently.
