VPF
Voluntary Provident Fund popularly called VPF, is a voluntary contribution you make towards the Employee Provident Fund (EPF). There is no matching contribution from your employer. You may invest 100% of (basic + Dearness Allowance) in the VPF.
Your investment towards the VPF earns a fixed interest as specified by the Government. Your contributions are eligible for a tax deduction under Section 80C of the income tax act up to Rs 1.5 Lakhs a year. If you invest more than this (EPF + VPF + other eligible Section 80C investments), there are no tax benefits.
Why VPF is good for retirement?
If you invest in the VPF, your money is automatically deducted from your salary. This teaches you disciplined investing.
If you want to invest in safe investments, think VPF. You get returns above inflation. VPF currently offers interest of 8.65%, which is higher than the PPF and even FDs. The rates on EPF and VPF change each year and are fixed by the EPFO. An investment in VPF is safe and guaranteed by the Government.
Why invest in VPF?
You get good returns
VPF offers higher interest than PPF, FD, NSC and most fixed income investments. It gives inflation beating returns.
It's a safe investment
VPF is a safe investment guaranteed by the Government of India.
Investment is hassle free
VPF investments go through your EPF account enabling a smooth transfer when you change jobs.
VPF enjoys EEE benefits
The amount contributed up to Rs 1.5 Lakhs a year, the interest earned and the amount withdrawn are tax-free.
Key Factors for an investment in VPF
- You cannot increase EPF contribution, but you can increase VPF contributions.
- VPF earns the same interest as EPF which accumulates in your EPF account.
- EPFO invests part of your money in equity and VPF has an exposure to stocks, giving higher returns.
- To invest in the VPF, simply inform your employer on how much you want to invest.
Concepts and FAQ's on VPF
1. How to open a VPF?
It's really simple to convert an EPF account to a VPF account. You need to tell your employer, you want to open a VPF account. Inform this in writing to your HR Department. Declare the additional amount you want to invest in the VPF.
2. How much should you invest in VPF?
Investing in VPF is great, as you currently earn 8.65% a year. This is higher than most fixed income investments. The contribution to VPF reduces take home pay. It's pointless to invest in VPF, if you have to avail loans to meet daily needs.
3. How to withdraw from VPF?
You can withdraw the money in your VPF, in case of a financial emergency. These are some of the common reasons people withdraw from the VPF account.
- Medical expenses of self and close family members.
- Children's marriage and higher education.
- Purchase or construction of a house or residential apartment.
- Repayment of home loans or other loans.
It is compulsory for your VPF account to complete 5 years, otherwise you have to pay tax. You have to write a request letter and submit the Form-31 to your employer.
Form-31 is an EPF Fund application for an advance and is available with HR and Finance Departments of most firms. You can download the Form-31 from the EPFO website.
Documents like your postal address, the EPF account number and bank details where maturity and advances need to be credited must be furnished along with a cancelled cheque. Documents must be attested by your employer.
