How to use Voluntary Provident Fund (VPF) to boost your retirement corpus safely

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The Voluntary Provident Fund is a continuation of the Employees' Provident Fund, wherein salaried employees can contribute over and above the compulsory 12 per cent of basic salary and dearness allowance. The employer does not contribute this extra amount, but it earns the same interest rate as EPF and enjoys the same protection under government rules. This appeals to those who want to increase long-term savings without taking on market volatility.

Why VPF is attractive in 2025

The frequent rate changes in many conventional fixed-income options have made planning quite challenging. The VPF rate is unchanged and competitive, and the returns come with a sovereign guarantee. As long as the interest rate stays above most bank deposits and similar low-risk products, VPF begins to emerge as a solid choice for long-term savings. The interest is credited annually, and over a number of years, this can multiply manifold due to the power of compounding to give you a sizeable final retirement corpus.

How contributions work

Employees may request that their employer deduct a higher percentage of salary toward VPF, which can be either a fixed amount over and above the statutory EPF contribution or a percentage thereof. The deduction would get routed through payroll, and the contribution would start from the following salary cycle once the employer processes the request. Since this is not an independent investment product, there is no separate account opening process, hence easy to start.

Tax treatment and withdrawal

Under the existing income tax regime, contributions of up to a specified limit have obtained tax benefits. Interest would remain exempt from tax if an employee's total contribution across PF accounts remains within the specified ceiling in a year and if the account has been held for five years. Withdrawals before five years may attract taxes, and partial withdrawals follow EPF rules, under which one can access them under certain conditions like medical needs, home purchase, or education.

Who benefits most?

VPF is ideal for risk-averse investors who need assured returns, those close to retirement who desire stability in their portfolio, and salaried employees in higher tax slabs for efficient saving. Young earners will similarly benefit from an early head start, as decades of continuous contributions will amass a sizeable retirement fund.

Points to consider

The VPF contributions are frozen and not freely withdrawable; therefore, there is limited liquidity. Contribution levels can only be changed through the employer and may lack flexibility. If the employee works in an organization where there is irregular compliance regarding PF, he should confirm his accounts are updated regularly since delays in deposit affect interest accrual.

Getting started

An employee has to start by writing to the payroll or HR department to request an increase in PF contributions. The employer will process it and reflect the increase in deduction from monthly salary. Payslip and account statement reconciliation is important to ensure that the contribution amounts are credited appropriately.

VPF continues to be a great combination of safety, steady returns, and tax efficiency. For salaried individuals who want to strengthen their retirement planning without market-linked risk, increasing contributions through VPF can be an easy and rewarding step.