VPF - Voluntary Provident Fund | Overview, Features & Benefits

If you are a salaried employee looking to build your retirement savings more than the standard set amount, the Voluntary Provident Fund (VPF) is worth understanding. It allows you to contribute additional amounts to your provident fund beyond the mandatory contribution, offers government backing, fixed returns and tax advantages. In this article we will explain what VPF is in very simple terms, its features, benefits, eligibility, and what to check before you invest.

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What is Voluntary Provident Fund (VPF)

The VPF is a scheme under which a salaried employee (who is already contributing to the Employees Provident Fund or EPF) can voluntarily choose to contribute more than the mandatory contribution to his/her provident fund account.
Here are the key points in simple language:

• In EPF you contribute 12 % of your basic salary + dearness allowance (DA) each month. VPF allows you to contribute additional amounts beyond this 12 %.
• The extra amount is still placed in the same provident fund account (via EPF infrastructure) and earns the same interest rate as EPF.
• The scheme is optional. You decide how much extra to contribute (within limits).
• Because it builds on EPF, it carries the same government-backed safety and long-term saving discipline.

Eligibility - Who can use VPF

Here are the eligibility conditions in simple language:

• You must be a salaried employee in an organisation covered by EPF (usually organisations with 20 or more employees or covered under EPF rules).
• You must already be a member of EPF. VPF is essentially an extension of EPF.
• You must submit a written request to your employer/HR about the extra contribution you wish to make.
• There is no upper age-limit specified for joining, but the investment horizon will be tied to your service/retirement period.
• Once you begin the extra contribution, you typically cannot stop it mid-year for that financial year.

Key Features of VPF

Here are the important features, explained simply:

• Contribution limit: You can contribute up to 100% of your basic salary + DA (in addition to the standard 12 % EPF) if you wish. There is no strict maximum cap.
• Interest rate: VPF earns the same interest as EPF. For example for recent financial years the rate has been around 8.25% per annum.
• Lock-in/tenure: While you can contribute as long as you are salaried and maintain EPF membership, for full tax benefits you are expected to maintain the investment for at least 5 years.
• Safety: Because it is backed by the government (via EPF infrastructure), the risk of capital loss is extremely low.
• Transferability: If you change your job, the existing EPF/VPF account can be transferred to your new employer’s EPF account; the VPF continues as part of your PF arrangement.
• Tax treatment: Contributions, interest and maturity (when eligible) enjoy favourable tax treatment (see section on benefits).

Benefits of VPF

Here are the benefits of VPF in beginner-friendly language:

• Higher savings potential: Since you can contribute more than the mandatory amount, you can build a larger retirement corpus.
• Fixed, attractive returns: The interest rate is comparable to EPF and higher than many fixed deposits, giving you good return for a safe investment.
• Tax advantages: Contributions up to ₹1.5 lakh in a year qualify under Section 80C of the Income Tax Act. Additionally, interest and maturity amount are tax-free if conditions (like 5-year minimum) are met.
• Risk-free investment: Government backing makes this a very low-risk savings option, ideal for those who prefer safety over high risk.
• Simple process: You just inform your HR/employer. No need to open a separate account.
• Useful for long-term goals: For retirement planning, you can boost your savings using VPF, especially if you have surplus salary you want to save.

What You Should Check / Things to Keep in Mind

Even though VPF is quite straightforward, you should check the following:

• Confirm the current interest rate (since EPF rates change annually) so you know what return you will get.
• Ensure that your employer is properly deducting the extra amount and depositing it as VPF. Missed months reduce your corpus.
• While you can contribute up to 100% of basic + DA, you should check your overall financial plan; tying up too much money may reduce liquidity.
• If you withdraw or resign before 5 years of service, tax benefits may be reduced.
• If you change jobs, ensure your account is transferred and contributions continue to avoid gaps.
• Even though the investment is “safe”, you still need other investments (like market-linked) so your portfolio is diversified.
• Understand when you can withdraw: typically at retirement/resignation or as per EPF withdrawal rules.
• Keep track of your PF/VPF balance via the passbook portal (via UAN) to check correctly credited contributions and interest.

Summary

The Voluntary Provident Fund is a powerful savings tool for salaried employees in India who wish to boost their retirement savings beyond the standard EPF contribution. Backed by the government, with a favourable interest rate (8%+ in recent years) and strong tax-benefits, it offers a safe and disciplined way to accumulate savings. To make the most of it, ensure your contributions are consistent, the employer deposits are correct, you meet the 5-year minimum for full tax benefits, and you keep some liquidity elsewhere for shorter-term needs.