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Voluntary Provident Fund (VPF) – Should You Opt?

Voluntary Provident Fund

VPF stands for voluntary provident fund. It is the voluntary contribution by the employees towards the provident fund account over and above fixed contribution. An employee will get benefits of the same interest rate as that of EPF. The rate of interest rate is revised annually and declared by the government. VPF is a risk-free and tax-free investment option. The maximum contribution allowed for VPF is 100% of the basic salary and dearness allowance.

Who can contribute to Voluntary Provident Fund (VPF)?

VPF is an extension of the EPF scheme. This means only salaried employees receiving a salary on a monthly basis are eligible to make a contribution to the VPF.

It is very easy to apply for voluntary provident fund. An employee needs to write to the employer or concern person in the accounts department requesting them to increase EPF contribution by the amount they desire. Few companies provide a readymade form called a VPF form. This form contains details such as contribution amount, start date, etc. This amount is directly debited from the salary of an employee. The option of opting for VPF is available anytime during the financial year.

Also Read – How to withdraw EPF (Employee Provident Fund) online & offline?

Rules & Regulation of Voluntary Provident Fund

Rules and regulations applicable for VPF are given below.

  • The contribution under VPF is not compulsory. It is voluntary.
  • The rate of interest applicable to the EPF and VPF is decided by the Government of India every financial year. The interest rate can increase or decrease compared to the previous year.
  • Individuals who are not part of EPF scheme or employees working for unorganized sector are not allowed to open EPF/VPF account.
  • An employee can opt for VPF contribution any time during the financial year.
  • Partial withdrawal in the form of a loan is allowed from VPF. However, if it is withdrawn before the maturity period, the withdrawn sum is taxable.
  • One can get tax benefits up to 1.5 Lakh under section 80c for the contribution made under VPF. 

Benefits of VPF

There are multiple benefits of investing in VPF. The details are given below.

Tax Benefit –

VPF is similar to PF it falls under the EEE (Exempt – Exempt – Exempt) category. This means employees can enjoy tax benefits at the time of investment (by claiming benefits) as well as at the time of withdrawal.

Safe Investment Option

It is one of the safe investment options. This scheme is managed and maintained by the government of India. Compared to other long term investment option VPF is safe.

Easy Application process

The process of applying for VPF is very easy. You just need to contact your employer and apply on plain paper or form mentioning contribution amount.

Transfer Process is easy

In case an employee change the job, the transfer process of VPF is very easy. VPF account can be transferred from the old company to a new one.

Withdrawal is allowed

A withdrawal of VPF is allowed under certain conditions and reasons such as medical emergency, higher education of account holder, a requirement of buying new land or house, etc.

Comparison of EPF, VPF and PPF

epf vpf pf comparison

EPF/VPF withdrawal Facility

The withdrawal facility from EPF/VPF is available. However, if withdrawal is done before 5 years of minimum tenure, tax is applicable on the withdrawal amount. The reasons for which VPF withdrawal is allowed are given below.

  • Medical Treatment of self or family members. A certificate of doctor is required.
  • Marriage of self, children or brother.
  • Home improvement purpose.
  • Repayment of home loan. Home should be owned by EPF/VPF account holder.
  • Buying land.
  • Higher education of self or children.

The process of withdrawal is very easy. You have to fill out Form 31 through the employer. This form contains detail about the withdrawal amount and bank details. All required documents should be verified by the employer. On submission of the form along with the document, the amount will be transferred to the mentioned bank account.

Should you opt Voluntary Provident Fund for Investment?

VPF is a very good investment option for the risk-free investor who prefers debt investment with fixed returns. If you are an investor with low-risk appetite and conservative approach towards investment you can opt for voluntary provident fund. If you are nearby retirement age and if you want to reduce your equity portfolio and increase debt portfolio VPF contribution could be a good option.

Young people should not opt for VPF. They should focus more on equity component and equity-based mutual funds.

Shitanshu Kapadia
Shitanshu Kapadia
Hi, I am Shitanshu founder of moneyexcel.com. I am engaged in blogging & Digital Marketing for 10 years. The purpose of this blog is to share my experience, knowledge and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment , tax, financial advice or legal opinion. Please consult a qualified financial planner and do your own due diligence before making any investment decision.