Voluntary Provident Fund: How to invest and benefit from high interest rates

How to invest in VFP and benefit from high interest rates

Looking to boost your retirement savings and make the most of your EPF account? Well, investing in a Voluntary Provident Fund (VPF) might be just what you need. It’s a super simple way to top up your Employee Provident Fund (EPF) and enjoy high interest rates while keeping your money safe. Plus, it’s government-backed, so there’s no need to worry about market risks.

Whether you’re new to the workforce or just looking to secure your golden years, VPF can be a smart move.

The VPF is essentially an extension of the EPF. While your employer contributes 12% of your salary to the EPF, with VPF, you can voluntarily put in extra contributions, up to 100% of your basic salary and dearness allowance. The best part? You earn the same attractive interest rate as the EPF (which was 8.15% in the financial year 2023-2024). And yes, all that interest is tax-free!

Check Eligibility: Only salaried employees with an existing EPF account can opt for a VPF. If you are self-employed or work in the informal sector, you are not eligible for this scheme.

Contact Your HR or Payroll Team: Inform your HR department that you want to start contributing to VPF. You will need to submit a written request specifying the amount you wish to contribute from your salary. This amount will then be deducted automatically every month.

Decide on Your Contribution: You can contribute anywhere from a little extra to as much as 100% of your basic salary. Just remember, contributions up to ₹1.5 lakh per year are eligible for tax deductions under Section 80C.

Monitor Interest Rates: VPF earns the same interest as the EPF, and it’s updated every year by the government. Make sure to stay informed about any changes to make the most of your investment.

High Interest Rates: The VPF offers some of the highest interest rates available, at 8.15% in 2023-2024. That’s higher than most fixed deposits or savings accounts.

Tax Benefits: Contributions up to ₹1.5 lakh are tax-deductible under Section 80C. Moreover, the interest earned and the final maturity amount are both tax-free if the investment is held until retirement.

Safe & Secure: Since VPF is backed by the government, your money is safe—no market risks involved.

Easy to Manage: Since VPF contributions are deducted directly from your salary, it’s a hassle-free way to invest without worrying about manually making payments every month.

Flexible Withdrawals: Although VPF is a retirement-centric scheme, you can withdraw funds in case of financial emergencies such as medical expenses, children's education, or home purchase. However, early withdrawals are subject to tax if done before five years of continuous service.

Lock-in Period: VPF is meant for retirement, so while you can make partial withdrawals in emergencies, it’s best to treat this as a long-term investment.

Tax on High Contributions: If your combined EPF and VPF contributions exceed ₹2.5 lakh in a year, the interest earned on the excess contributions will be taxed.

No Employer Contributions: Unlike EPF, where your employer also contributes, VPF does not include employer contributions. This may affect the overall growth of your retirement corpus.

When it comes to saving for retirement, VPF is an excellent choice if you’re looking for a high-interest, low-risk investment option. It’s perfect for anyone who wants to boost their savings without dealing with the volatility of stock markets or mutual funds.