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What is a Voluntary Provident Fund (VPF)? How to Open a VPF Account Online?

What is a Voluntary Provident Fund (VPF)? How to Open a VPF Account Online?
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For many of us retirement planning may seem a distant thing to worry about. Yet it is one of the essential things that we should start planning for. Research suggests that people tend to expect happy outcomes like marriage, a child’s education, a holiday trip, or buying a new house but tend to push their retirement planning down the line. However, we cannot stress enough the fact that retirement planning should be your priority. The reason-retirement is the only financial goal for which you won’t get a loan. Thus, there are many options available to safeguard your retirement corpus and one such is Provident Funds(PFs). In India, there are two types of PFs-compulsory and optional. The Employee Provident Fund (EPF) is mandatory while Voluntary Provident Fund (VPF) is optional.

What is a Voluntary Provident Fund (VPF)?

Voluntary Provident Fund abbreviated as VPF is a government-backed, optional, and high-return scheme. This retirement savings scheme is linked to the Employees’ Provident Fund (EPF).  In a Voluntary Provident Fund system, only the concerned individual can make VPF contributions, unlike EPF which enables both the employees and employers to make contributions. Therefore, you can simply view the Voluntary Provident Fund as an extra contribution to income made by individuals. The amount that is over and above the compulsory percentage is the Voluntary Provident Fund. Once you’ve chosen to contribute to VPF, you can discontinue or terminate before 5 years of service have passed. 

What are the Features of a Voluntary Provident Fund?

Voluntary PF has the following features that you must know: 

  • VPF Contribution: Employees can contribute any amount to VPF, up to a maximum of 100% of their basic salary and dearness allowance.
  • VPF Interest Rate: The VPF interest rate is linked to the interest rate on EPF. The current interest rate on EPF is 8.5%.
  • Maturity Period: The maturity period for Voluntary Provident Fund is 35 years. However, you can withdraw your money from VPF after the completion of 5 years of continuous service.
  • Tax Benefits: The contributions to the Voluntary Provident Fund are eligible for tax deductions under Section 80C of the Income Tax Act, 1961.
  • VPF Withdrawal Rules: You can withdraw your money from VPF after the maturity period, or in certain other circumstances, such as for medical emergencies or house purchases.

What is the Eligibility Criteria for Investing in VPF?

Individuals who belong to the organized sector of the economy are eligible for a Voluntary Provident Fund (VPF). Moreover, EPF is only applicable to organizations that have more than 20 employees. Therefore, one must work in an organization that is recognized by the Employees’ Provident Fund Organisation (EPFO) to avail the benefits of the VPF scheme. If your company provides a Voluntary Provident Fund option, then as an employee you can actively avail this option throughout the financial year. 

What are the Documents Required to Open a VPF Account?

For opening a Voluntary PF account, an employee must present the following documents:

  • Company Registration Certificate with the Ministry of Finance (MoF)
  • Proof of Identity: You need to submit a copy of a valid identity proof document. 
  • Acceptable documents include: Aadhaar card, PAN card, Passport, Voter ID card, Driving license or any other government-issued photo ID card.
  • Detailed profile of the organisation.
  • Form 49 and Form 24.
  • Business registration certificate

Therefore, as an employee, it is your responsibility to inform your employer of your desire to increase your EPF contribution. As a result, your existing EPF account will then be used for VPF contribution.

Voluntary Provident Fund (VPF) Interest Rate Trajectory

The Government of India and the Employees’ Provident Fund Organisation (EPFO) review the interest rate of VPF at the end of every quarter. Therefore, we have listed out the growth trajectory of VPF interest rates for the last 5 years.

YearInterest Rate

Since the VPF interest rates are announced at the beginning of the financial year, they might fluctuate in both ways. Thus, the change in VPF interest rates is a good sign as it ensures that your money grows over time. If the VPF contribution is on a regular basis, you can expect to see a significant increase in your savings over the years.

How Does a Voluntary PF Work?

The Voluntary Provident Fund (VPF) is an extension of the Employee Provident Fund (EPF) and operates under the same principles. It allows employees in India to make additional VPF contributions towards their retirement savings. Employees can voluntarily choose to contribute a portion of their salary to the VPF, beyond the mandatory EPF contribution. 

The VPF contributions made by employees earn a fixed VPF interest rate determined by the government, typically aligned with the EPF interest rate. The interest on Voluntary PF is compounded annually. Thus, upon retirement or resignation, employees can withdraw the accumulated funds in their VPF account, including both the contributions and the accrued interest. It’s important to note that premature withdrawals before completing five years of continuous service may have tax implications.

How to Open a VPF Account Online and Offline?

Voluntary Provident Fund Account Opening Online

  • Visit the official EPF portal or website designated by your employer. In most cases, employers provide employees with online access to their EPF accounts.
  • Log in or register using your credentials. If not, you may need to register by providing your EPF member ID, personal details, and contact information.
  • Navigate to the VPF section and this section might be labeled as “VPF Contribution” or similar.
  • Enter the desired contribution amount for your VPF account. Keep in mind that there may be a maximum limit set by the government or your employer.
  • Review the contribution details and confirm the amount you wish to contribute to your VPF account. Follow the instructions to authorize the deduction from your salary.
  • After successfully submitting your VPF contribution request, you should receive an acknowledgement or confirmation of the transaction.

Voluntary Provident Fund Account Opening Offline

  • Go to the nearest EPFO office in your locality.
  • Fill up the VPF account opening form and submit it along with the following documents:
    1. Identity proof: Aadhaar card, PAN card, voter ID card, passport, or driving license.
    2. Address proof: Aadhaar card, voter ID card, passport, or driving license.
    3. Proof of employment: Salary slip or employment letter.
    4. Bank account details: Account number, IFSC code, and MICR code.
  • Pay the VPF contribution amount. The minimum contribution amount is 5% of your basic salary and dearness allowance.
  • Your VPF account will be opened within a few days. You will receive an acknowledgement from the EPFO office.

How to Invest in a Voluntary PF?

Making VPF contributions is very simple and straightforward. Unlike PPF, you don’t need to open a separate account, you just need to inform your employer that you’re willing to increase your EPF contribution. As a result, the employer will deduct a desirable amount that you wish to get deducted. This is the reason which makes VPF an attractive and hassle-free investment opportunity. 

What’s more? The EPF account is transferable, so when you change your job, you just need to inform your new employer that you’re willing to make VPF contributions from the same EPF account.

What are the Voluntary Provident Fund Benefits?

Here are the benefits of Voluntary Provident Fund (VPF):

  • Security: The money in VPF is invested in a diversified portfolio of assets, including government bonds, corporate bonds, and equity. This makes it a relatively safe investment option.
  • Liquidity: You can withdraw your money from VPF after the maturity period, or in certain other circumstances, such as for medical emergencies or house purchases.
  • High-Interest Rates: The current VPF interest rate is 8.5%. This means that your money will grow at an annual rate of 8.5%.
  • Easy to Open: You can open a VPF account through your employer or online. The process is simple and straightforward.
  • No Lock-in Period: There is no lock-in period for VPF. You can withdraw your money at any time, subject to certain conditions.

VPF Tax Benefit

As mentioned above, a Voluntary Provident Fund enjoys the complete benefits same as offered by EPF. Contributions that are made for the EPF are eligible for Tax deductions under Section 80C of the Income Tax Act, 1961. This means that you can reduce your taxable income by the amount you contribute to VPF.

Additionally, if an individual completes the lock-in period of 5 years and does not withdraw the amount, then the interest and the maturity amount are eligible for tax exemption.

Furthermore, since EPF and VPF are government-backed schemes. The account holder is eligible to enjoy the significant benefits as well as guaranteed benefits of both government schemes.

VPF vs Other Provident Funds Scheme

EPF (Employee Provident Fund), VPF (Voluntary Provident Fund), and PPF (Public Provident Fund) are all popular investment options in India that serve as vehicles for long-term savings and retirement planning. While EPF vs VPF vs PPF share similarities in their purpose of wealth accumulation, there are distinct differences that set them apart.

While EPF is an employer-driven mandatory scheme, VPF and PPF provide individuals with the option to make voluntary contributions. EPF vs VPF is focused on retirement savings and offers similar benefits, whereas PPF caters to broader financial goals and provides additional liquidity options. Understanding the contrasting traits of these savings instruments can help individuals make informed decisions based on their financial needs, risk appetite, and long-term goals.

How to Withdraw from a VPF Account?

There are two ways to withdraw from a VPF account:

  • Online: You can withdraw your money from your VPF account online through the EPFO website. You will need to login to your EPFO account and fill up a withdrawal request form. You will also need to upload a scanned copy of your PAN card and bank account details.
  • Offline: You can also withdraw your money from your VPF account offline by submitting a withdrawal request form to your employer. You will need to provide your employer with the same documents that you would need to submit online.

Once you have submitted your withdrawal request, your employer will process it and send the money to your bank account. The processing time for a withdrawal request is usually 10-15 working days.

Here are some of the documents that you will need to submit for a VPF withdrawal:

  • Form 31: This is the withdrawal request form that you will need to fill up.
  • PAN Card: You will need to submit a scanned copy of your PAN card.
  • Bank Account Details: You will need to submit the details of your bank account, including the account number, IFSC code, and MICR code.

To Wrap It Up….

A VPF account is quite similar to an EPF account. Thus, the voluntary Provident Fund (VPF) accounts offer individuals an excellent opportunity to enhance their retirement savings through additional contributions to their existing Employee Provident Fund (EPF) account. VPF accounts provide a secure and tax-efficient investment avenue, allowing employees to set aside a higher portion of their salary towards their long-term financial goals.

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