Voluntary Provident Fund – VPF

Voluntary Provident Fund or VPF is a type of retirement fund that is backed by the sovereign guarantee.

It is always a good idea to build a retirement fund so as to have a regular income post retirement. This can be done by parking the money in different avenues, and there are a lot of options available that can cater to different investors with different risk profiles.

One of the most noteworthy option, backed by the Government of India, is the Provident Fund (PF).

PF can be primarily distinguished into:

  1. Mandatory Provident Funds – These are the ones which is enforced upon, namely Employee Provident Fund or EPF
  2. Optional Provident Funds – These are optional funds that may or may not be subscribed by anyone. For example
    • Public Provident Fund or PPF
    • Voluntary Provident Fund or VPF

In this article we are going to focus mainly on Voluntary Provident Fund and how it stands against others.

What is VPF

Voluntary Provident Fund, as the name suggests, is a voluntary contribution facility available to salaried employees. It differs from EPF in the sense that, EPF or Employee Provident Fund is a mandatory contribution scheme for all employees, along with the Employer contribution.

In VPF, there is no employer contribution, and all the contribution is voluntarily done by the employee.

PPF or Public Provident Fund on the other hand is available for all citizens of India within a particular age limit. This is also a voluntary contribution scheme.

Rate of Interest

The Rate of Interest or the Rate of Return is the returns the fund is going to generate. This is fixed by the government and can vary every quarter. During the final quarter of 2022, the returns for VPF is 8.1%.

This is same as that of the EPF, but is 1% higher than that of PPF which stands at 7.1%

If we compare the return to that of a Tax Saver FD, they return around 6%.

The return is great, considering that the return rate is fixed and the interest generated is tax free.

Things to keep in mind before investing in VPF

While VPF is a great tax saving instrument, it has a lock-in period of 5 years, compared to 3 years of PPF.

Also interest for combination of EPF & VPF, is higher than 2.5 lacs in a financial year, then the additional interest is taxable.

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