Experts explain: Why VPF is a good investment option for retirement planning

Employees’ provident fund (EPF) interest rate is set to rise from 8.55 per cent to 8.65 per cent, giving private sector employees more monetary benefit from their deposits. The EPF subscribers can also benefit from this higher interest rate by voluntarily contributing more - through the voluntary provident fund (VPF).  VPF interest rate is same as EPF and it is tax-free. Experts say VPF is a good investment option for retirement benefits as it provides a higher interest rate compared to other secured investments.

VPF is also often referred to as the Voluntary Retirement Fund. It is basically the voluntary fund contribution from the employee towards his provident fund account. Only private and government sector employees who contribute to EPF and GPF can invest in VPF.

"VPF gives higher returns than PPF, bank fixed deposit and 5-year NSC or national savings certificate. While PPF and 5-year NSC give 8 per cent return at the current rate, fixed deposits attract an even lower rate of 7.5 per cent. That is why it (VPF) can be a
secured investment avenue for maximising the retirement benefits," Jitendra Solanki, a SEBI-registered investment expert, told Zee Business Online. 

"This scheme is a very good investment option for the private sector employees in their 40s and with this increase in the rate, it eve becomes more lucrative," he added.  VPF is a risk-free and tax-free investment option. Even young employees can put money into this to maximise their retirement benefits. Under this scheme, employees can contribute voluntarily in addition to the EPF contribution.

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"VPF is a great retirement planning tool and therefore, it should be there in the debt portfolio of all salaried employees,” said  Mumbai-based investment and tax expert Balwant Jain.  VPF scheme is flexible and convenient, as VPF contribution amounts are deducted from salary, Jain said.  

Jain added,  "VPF should be in employees' portfolio as early as possible early as this will help them reap better retirement benefits. However, employees at a young age may keep more high-return investments like mutual funds and equities in their portfolio."

VPF comes with withdrawal restrictions and full withdrawal is possible only at the time of retirement. If an account holder regularly contributes to this scheme for five years then s/he gets tax exemption.