What Is Voluntary Provident Fund? All You Need To Know

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Similar to PF, employees can deposit their money in VPF.

Similar to PF, employees can deposit their money in VPF.

Annual interest is given to the employees on their PF money.

Employee Provident Fund is a compulsory retirement scheme for all working people. Any company that employs more than 20 people has to mandatorily deduct 12 percent of the basic salary of each employee every month and deposit a maximum of 12 percent in the PF account of the employees. Annual interest is given to the employee on this money. But if the employee wants to invest more, then along with the PF account, they can also deposit money in the Voluntary Provident Fund (VPF).

Similar to PF, employees can deposit their money in VPF. However, a VPF allows an employed person to deposit as much as his full salary into the account plus allowances instead of just 12 percent. The interest on a VPF is similar to PF but since larger amounts are allowed to be deposited in the account, the returns are slightly better.

VPF is a great savings tool for people who want to secure their post-retirement life. Not only does it have a great interest rate for returns but it also helps in saving tax deductions. Since it comes under the Triple E category investment plan, it is exempt from taxes meaning that the total deposit amount and the interest will all be yours and no part of it will go to the government.

The risk-free investment plan enables you to withdraw money at any point in time. The VPF account is linked to the Aadhaar, and it is easy to transfer your VPF account from one company to another on changing your job. This is because the VPF is managed by you instead of the company.

If your annual EPF contribution is less than Rs 2.50 lakh, then you should start investing in VPF immediately. If you invest Rs 12,500 every month in EPF, then your annual investment will be Rs 1.5 lakh only. This means you can invest Rs 8,333 more every month in VPF.

This way, you can get an 8.1% tax-free return on Rs 2.5 lakh per annum. You can change the amount deposited in VPF twice a year. However, for this, you have to contact the HR/Finance department of your company.

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