Build your retirement nest egg with VPF

Nest egg savings

If you are in your 20s or 30s and try to use some of the “calculate how much you need on retirement” tools available online, the result is an unbelievably large sum; with the effect of inflation and time factored in. And any financial planner would tell you that the only way to save this kind of money would be to save wisely and regularly, take calculated risks and invest in a proportion of equity and debt according to your age, profile, line of business etc.

The voluntary provident fund or VPF is one of the best options which should form the fixed income / low risk category of your retirement planning portfolio.

What is VPF?

VPF or the Voluntary Provident Fund is the voluntary deduction of a specified sum from your salary towards EPF, over and above the 12 % of basic cum dearness allowance deducted from your salary by the employer. However, while the employer also contributes an equal sum in case of EPF, there is no such contribution in a VPF.

Features and benefits

  • The interest earned on the VPF (fixed at 8.6 % pa for FY 2013-2014) is tax free.
  • The VPF contribution is also eligible for tax rebate under section 80 C.
  • There is no upper limit unlike the Public Provident Fund or PPF which accepts contributions of only upto Rs 1 Lakh per annum. The entire basic pay can be contributed to the VPF.
  • The contribution goes into the EPF pool and the maturity proceeds are tax free(unless withdrawn within 5 years).
  • The entire corpus can be withdrawn when one quits the organization, or for special requirements like building a house, marriage, childrens’ education etc.
  • VPF amount can also be changed, at the start of each financial year. It can be discontinued for a specified period in times of extra expenditure/outflow.
  • Since VPF is deducted every month from your salary, it is a disciplined way of saving.

The disadvantages

  • The interest rate on the VPF is subject to change and if lowered, the new rate would be applicable on the entire saved corpus.
  • This facility is available only for the salaried class.

In conclusion

The VPF is one of the very few low risk high safety avenues where the investment, interest and the maturity all are tax exempt (EEE), and the advantages far outweigh the limitations.

If you are salaried and have a monthly income surplus which you can save for the long term, do consider opting for the Voluntary Provident Fund.


10 responses

  1. Dr M.Chandrashekhar MD | Reply

    Nice article. For non-employees, I guess, one could use PPF & even after 16 years continue investing 1 Lac annually till you decide to retire. Is that OK ?

    1. Yes. You could do that. But when you extend the PPF for a block of 5 years post 16 years, there are restrictions on withdrawal. Please go through a previous article on PPF using this link-

    2. Hi Annapurna,

      Nice to see your responses to various PF related queries.

      I am a salaried employee and looking to contribute towards VPF. Could you please provide details on the following points?

      -How many times I can increase or decrease my VPF contribution in an year?
      -Can I stop the contribution in the middle of the year and again continue after few months?
      -Will we be having an option of making partial PF(EPF + VPF) with drawls?
      -Will there be any interest on the amount taken as a loan from PF account?
      -Can the loan amount be paid back or is it something like once the amount is out and cannot be placed back?


      1. Hi Shekhar

        Employees usually accept changes in VPF contributions usually only once a year, at the start of the financial year. And there is a provision of stopping the VPF contributions in between for a certain period if you anticipate some other expenses or a financial crunch.A written application needs to be made to your employer for the same.

        There is a loan facility on the EPF as far as I know, but people prefer withdrawing partially. Partial withdrawal are allowed on certain special occasions like for marriage, medical treatment, buying a house etc.

      2. Thanks Annapurna.

  2. Hi Annapurna, If one person is out of india and needs to withdraw PF from the employer since the employer require compulsory withdrawal after 3 years, how can one put away this money for retirement savings? The person being out of India would not have any employer in India to provide the PF facility


    1. The EPF amount can be withdrawn by filling up a withdrawal form (form 19) and submitting it to your former employer. Since the person’s current employer doesn’t have the EPF facility, it cannot be transferred. The EPF amount can them be invested in a suitable investment product depending upon the individual profile and requirement.But doing all this through a representative, without the person being in the country could be difficult.

  3. For how long one can discontinue VPF contibution? Is the existing amount is eligible for interest?

    1. Since VPF is just a voluntary contribution over and above the normal PF contribution from salary, one can start VPF or stop it temporarily or permanently whenever he or she wishes to.Since the existing amount adds to the PF kitty, the outstanding balance will fetch interest at the prevailing PF rates

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