What is Voluntary Provident Fund?

VPF or Voluntary Provident Fund, also called Voluntary Retirement Fund, is a type of voluntary contribution to be made by employees towards building up their retirement fund. This is different and apart from the normal EPF or Employee Provident Fund. The VPF is thus beyond the 12% contribution you make towards your EPF. The maximum contribution you can make towards your Voluntary Provident Fund is till 100% of your basic salary and dearness allowance. The interest in VPF is the same as in EPF.

That being said, employees are not under any obligation to contribute towards their Voluntary Provident Fund. Employees are also not obligated to contribute to the plan. However, once the plan is chosen and finalized, you cannot terminate or discontinue it till the end of 5 years. Voluntary Provident Fund’s interest rate is determined by the government of India at the beginning of every financial year.

Who can invest in a Voluntary Provident Fund?

Let is be known that a Voluntary Provident Fund is but an extension of the employee Provident Fund. Only salaried people who get monthly salaries from specific salary accounts can use this option. 

Benefits of Voluntary Provident Fund

Voluntary Provident Funds have many benefits. This is because they fall under the EEE category. What is the EEE category, you ask? Well, it means Exempt on contribution, Exempt from the principal amount, Exemption on interest.

That’s a lot of exemptions! It makes Voluntary Provident Funds a fantastic option if you want to save on tax. Apart from this, employees also get to develop a big savings portfolio which helps later on in life.

Voluntary Provident Funds is a Safe Investment Option

A voluntary provident fund is managed by the Government of India with fixed accrual interest. This, it is a risk-free investment plan if you compare it with the long-term investment plans given by private plan sellers. This is a big benefit for employees since you can be sure to get your money back whenever you want, full or partial according to your wish, or at your retirement with all the interest.

Voluntary Provident Funds is Easy to Apply

Opening a Voluntary Provident Fund account is easy. All you need to do is approach the Finance or HR team in your company, tell them of your decision, and request to make additional contributions through the Voluntary Provident Fund after filling a registration form. Your EPF account shall then serve as the VPF account.

Voluntary Provident Funds give you High returns

As of now, the interest accrued for Voluntary Provident Funds is 8.5%. Tax exemptions under Section 80C are for contributions up to Rs. 1.5 lakhs and accrued interest.

Voluntary Provident Funds are Easy to transfer

A Voluntary Provident Fund account can be transferred from one employee to another on changing jobs. It is also transferrable to your nominee.