What is VPF (Voluntary Provident Fund) - Interest Rate & Benefits

Majority of us operate with financial goals like buying a house or the dream car, marriage, child’s education, etc. And securing our lives post-retirement is the foremost factor for financial investments. Public Provident Fund (PPF), fixed deposits and other traditional investments are ideal for consumers with low-risk appetite and who are satisfied with low-yielding yet assured return over a longer duration.With the tax benefit under section 80-C, PPF has been the popular investment among salaried employees and middle-income investors. However, the government has reduced the interest rate of PPF to 7.1 per cent. In such a case, the Voluntary Provident Fund (VPF) is a great alternative as it has a low-risk feature like PPF but offers a higher rate of interest.

Voluntary Provident Fund (VPF) is an addition to the Employee’s Provident Fund (EPF) and only salaried employees receiving remuneration every month are eligible for the scheme. A VPF is your contribution to the provident fund in addition to the EPF. While in EPF, you contribute 12% of your salary and dearness allowance, you can increase this amount to 100% in a VPF.There’s no compulsion on both employer and you to contribute to the VPF. The lock-in period of VPF is five years, and the rate of interest of VPF is similar to EPF, which is 8.65% per annum. To open a VPF account, approach the HR of your organisation. You will have to mention the percentage of deduction from your basic salary for VPF savings.

• Managed by the government, VPF yields long-term returns at a fixed interest rate, thus making it a safe investment.
• VPF offers PPF benefits of tax exemption and investment up to Rs. 1.5 lakhs, is tax-free, and the interest earned, too, is excluded from taxation.
• The VPF account is attached to the existing EPF and can be easily transferred along with the EPF when you resign and joining a new organisation.
• The PPF benefits and the high-interest rate allows you to generate a large corpus for retirement or unforeseen expenses.

The VPF account tenure lasts till you resign from the job or retire. If you withdraw entire or partial funds from VPF before the minimum lockin period of five years, the amount is susceptible to tax deductions. The VPF permits non-refundable advances for specific purposes such as child’s education or marriage, buying a house or unforeseen medical emergencies.Besides the purpose, the advance amount is also dependent on your service tenure. Also, in case of the investor’s death, the VPF amount is transferred to the eligible nominee.If you have an EPF account and yet wish to save more, VPF is an ideal investment with PPF benefits of low risk and long-term investment. If you are in your 30s, you can also invest in equities for high-yielding returns alongside your safe investment in VPF and EPF. The VPF is also suitable for those nearing retirement looking for higher returns than a PPF account.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.