Does Voluntary PF offer a viable retirement saving option?

Investing in a Voluntary Provident Fund (VPF) is a viable option for accumulating a significant savings account and assuring financial independence after retirement. Let us discuss it in detail.

Kirti Jha, MintGenie Team
Published12 Jun 2022, 08:59 AM IST
Investing in a Voluntary Provident Fund (VPF) is a viable option for accumulating a significant savings account and assuring financial independence after retirement.
Investing in a Voluntary Provident Fund (VPF) is a viable option for accumulating a significant savings account and assuring financial independence after retirement.(Image by pasja1000 from Pixabay)

Voluntary Provident Fund is a type of conventional provident fund savings plan which allows the contributor to choose the amount of a monthly fixed contribution to the plan. Employees are authorised to make voluntary contributions to their provident fund account under this plan, which is also known as voluntary retirement fund. The scheme excludes the employee's statutory contribution of 12% to the Employees' Provident Fund (EPF).

READ MORE: Why does it make sense to start planning early for retirement

How is VPF advantageous for employees?

The VPF account is classified as Exempt-Exempt-Exempt (EEE). Employees can thus profit from tax advantages while also earning a significant amount of money over time by investing in the VPF. Here are some benefits of VPF.

There are no dangers associated with investing in the scheme because it is run by the Indian government. Investing in a VPF account is very safe when compared to other long-term investment choices given by private organisations.

The rate of interest under the VPF plan is 8.50 percent per annum. The interest earned on the contributions is also tax-free.

The procedure for opening a VPF account is straightforward. Employees can submit a registration form to their employer's finance department, requesting that they start a VPF account. The existing EPF account will also be used as the VPF account.

It is relatively simple for employees to transfer the VPF account from their previous employment if they change jobs.

READ MORE: Retirement Planning | Should you choose slow financial independence over FIRE?

Documents required to open a VPF account

  • Form 49 and Form 24
  • A document from the Ministry of Finance confirming the company's registration.
  • The articles of association and memorandum must be submitted by SDN BHD organisations.
  • Certificate of incorporation for the company.
  • Organizational profile in detail

How to withdraw money from a VPF account?

The fund permits partial withdrawals in the form of loans, as well as full withdrawals. If the withdrawal occurs before the 5-year minimum term, the cumulative maturity amount will be subject to tax. The ultimate maturity payment is paid to the employee when he resigns or retires from his job. The nominee can inherit the accumulated funds in the VPF account in the event of the account holder's untimely death.

READ MORE: How should you calculate your retirement corpus? Here are 6 steps

The VPF fund is popular because the money accumulated can be withdrawn at any moment. In the event of a financial emergency, one can always rely on his VPF account.

Employers are not mandated to contribute to their employees' VPF accounts. Similarly, an employee is not obligated to contribute to the plan. Once a contribution has been selected in the VPF, it cannot be terminated or discontinued until the base tenure of 5 years has expired.

Investing in a voluntary provident fund is a practical alternative for building a substantial savings account and ensuring financial independence after retirement. While applying for the same, keep the documentation and important information available to avoid any last-minute hassles.

One can follow these steps to retire wisely.
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First Published:12 Jun 2022, 08:59 AM IST
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