PF investors, save more by investing in voluntary provident fund

Since interest rates are the same in EPF and VPF, you might see your money grow faster in the voluntary provident fund than your investments in other debt instruments.

If you are currently investing your hard-earned money in the Employees’ Provident Fund (EPF) and want to invest more at higher interest rates then you can do by puting your money in the voluntary provident fund (VPF).

You can contribute a sum higher than the mandatory 12% from your EPF account in VPF. Most importantly, savings in VPF get transferred easily just like your money in the EPF in case of a job change, as both are linked to your Account Number (UAN). Notably, VPF also follows EPF-like withdrawal rules.

Why invest in voluntary provident fund or VPF? 

Currently, interest rates offered by the banks are very low as compared to schemes as the EPF or VPF. In simple terms, interest rates are at record lows, and it isn’t wise to keep investing in many long-term debt investment instruments offering low returns. 

In comparison, the EPF provided an interest rate of 8.5% in the financial year 2021 that ended March 2021, offering one of the highest rates among long-term debt-saving instruments. Moreover, interest rates are generally in schemes such as EPF and VPF than debt instruments such as public provident fund (PPF).

In FY20, EPF also offered an interest rate of 8.5%. Since interest rates are the same in EPF and VPF, you might see your money grow faster in the voluntary provident fund. Interest rates for EPF are announced by the Indian government towards the end of a financial year. 

VPF also gives the same tax benefits as EPF. It falls under the exempt-exempt-exempt (EEE) tax structure—you get tax deduction benefit at the time of investment, and there’s no tax payable on accrual or withdrawal.

However, you might want to take note of the taxation system that is implied on EPF investments, especially after Budget 2021. Currently, an employee’s contribution above ₹2.5 lakh is taxable.