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Among all the forced savings which salaried persons undergo Employee Provident Fund carries an unmatched interest rate of 8.5%. Voluntary Provident Fund (VPF) is equally rewarding as EPF.

VPF is for those who already have an active EPF account.

What is VPF
VPF is an extension of one’s EPF account. Anyone can make additional voluntary contribution to his/her EPF account which is referred to as VPF.

Generally, contribution beyond the stipulated 12% by an employee in his EPF account is considered as VPF. The maximum contribution is up to 100% of the Basic Salary and Dearness Allowance. Interest is earned at the same rate as the EPF.

The employer is not bound to contribute to VPF. The employer’s contribution towards EPF is 12%.

An important thing to remember is that once a contribution is chosen in VPF, it cannot be terminated or discontinued before a tenure of 5 years. Otherwise tax will be levied.

Benefit of VPF
Like EPF, VPF is fully tax free. The contribution, interest and principal of VPF all are tax exempted.

Like EPF, VPF is safe. It is considered a risk-free long term investment instrument.

The interest rate of VPF is 8.5%, best among the lot. No government-guaranteed savings instrument offers that rate of interest.

Contribution up to 1.5 lakhs per annum and interest accrued is exempt from tax under section 80C of IT Act, resulting in higher returns.

To open a VPF account, an employee has to approach his company and request to raise a request for an additional contribution in the VPF through a registration form. The existing EPF account will serve as the additional VPF account.

Exit terms
Like EPF, VPF too has a locking period. If anyone wants to withdraw any amount within 5 years then income tax will be applicable.

Once the employee resigns or retires from employment the maturity amount is paid to the person. In case of untimely death of the account holder, the nominee can be paid the accumulated fund in the VPF account.

The VPF fund is mainly for retirement purpose and the accumulated money can be withdrawn at any given time for some special situations like medical emergency, higher education or marriage of the children and purchase or building a house.

Bottom line
VPF is a safe avenue for investing your money. Experts say that if a person invests a small amount of money, says Rs 3000 every month, after 30-35 years the corpus would be substantial since it would keep earning a high rate of interest.

“Even debt MFs would not give you such returns. Since it is linked with EPF, the VPF returns would always be high. So, it is a safe and secure instrument,” said Arvind Agarwal, renowned tax expert.