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Voluntary Provident Fund: VPF affords excessive returns, usually exceeding these of fastened deposits or common financial savings accounts.
VPF rates of interest are aligned with EPF charges, which the federal government updates yearly. (Representative picture)
Saving for retirement is likely one of the smartest monetary strikes you may make whereas incomes an everyday earnings. Investing in avenues that provide good returns can considerably improve your retirement corpus. Among the varied choices out there, catering to totally different threat profiles, the Provident Fund (PF) stands out for its security and sovereign assure. This article takes you to know the Voluntary Provident Fund.
In India, there are various kinds of provident funds based mostly on employment classes:
General Provident Fund (GPF):
The General Provident Fund is a financial savings and retirement scheme designed particularly for presidency workers. It shouldn’t be open to non-government workers, who can’t contribute to a GPF account.
Public Provident Fund (PPF):
Unlike the General Provident Fund, the PPF is a financial savings scheme out there to anybody, no matter employment sort. It permits people to lock of their contributions for a long-term interval, providing a safe choice for wealth accumulation.
Also, provident funds are categorised as obligatory or elective, with the Employees’ Provident Fund (EPF) being a obligatory scheme, and the Voluntary Provident Fund (VPF) serving as an elective extension of EPF.
EPF is a retirement and financial savings scheme just like the GPF. However, in contrast to the GPF, the EPF is necessary for workers working in organisations with greater than 20 workers.
What is a Voluntary Provident Fund?
The Voluntary Provident Fund (VPF) permits salaried people to contribute greater than the necessary 12% of their primary wage and dearness allowance to their EPF account.
With VPF:
- Employees can voluntarily contribute as much as 100% of their primary wage and dearness allowance.
- Contributions earn the identical engaging rate of interest as EPF (8.25% in FY24).
- The curiosity earned is tax-free, making it a profitable, low-risk financial savings choice.
How to Start Investing in VPF?
Check Eligibility:
Only salaried workers with an lively EPF account can go for VPF. Self-employed people or these within the casual sector should not eligible.
Inform Your HR/Payroll Team:
Submit a written request to your HR group specifying the quantity you want to contribute. The quantity shall be mechanically deducted out of your wage every month.
Choose Your Contribution:
Contributions can vary from a small share to the complete 100% of your primary wage. Note that contributions as much as Rs 1.5 lakh yearly are eligible for tax deductions beneath Section 80C.
Monitor Interest Rates:
VPF rates of interest are aligned with EPF charges, which the federal government updates yearly. Stay knowledgeable to maximise your returns.
The Central Board of Trustees of the EPFO, in session with the Finance Ministry, critiques this charge yearly.
Why Choose VPF?
Attractive Interest Rates:
VPF affords excessive returns (8.25% in FY24), usually exceeding these of fastened deposits or common financial savings accounts.
Tax Benefits:
-Contributions as much as Rs 1.5 lakh qualify for Section 80C deductions.
-Both the curiosity earned and the maturity quantity are tax-free, offered the funding is held till retirement.
Government-Backed Security:
Your funding is secure and unaffected by market dangers, making it splendid for risk-averse people.
Hassle-Free Management:
Contributions are deducted mechanically out of your wage, making certain a seamless and disciplined financial savings strategy.
Flexible Withdrawals:
While VPF is retirement-focused, funds might be withdrawn throughout emergencies reminiscent of medical wants, youngsters’s schooling, or house purchases. Note that early withdrawals (earlier than 5 years of steady service) might incur taxes.
Key Considerations
Long-Term Commitment:
VPF is designed for retirement financial savings. While partial withdrawals are allowed, treating it as a long-term funding yields the perfect outcomes.
Tax on Excess Contributions:
If the mixed contributions to EPF and VPF exceed Rs 2.5 lakh yearly, the curiosity earned on the surplus is taxable.
No Employer Contribution:
Unlike EPF, VPF contributions are solely from the worker. This might marginally have an effect on the general development of your retirement corpus.
Why VPF is Worth It
For these looking for a high-interest, low-risk funding, VPF is a wonderful alternative. It’s excellent for people trying to enhance their retirement financial savings with out venturing into unstable inventory markets or mutual funds.
By constantly contributing to a VPF, you guarantee a safe monetary future and benefit from the twin advantages of excessive returns and tax financial savings.
Disclaimer: The views and funding suggestions by consultants on this News18.com report are their very own and never these of the web site or its administration. Readers are suggested to test with licensed consultants earlier than making any funding choices.
