Voluntary PF | Meaning and Definition

What is Voluntary PF?

Voluntary PF, or Voluntary Provident Fund, refers to an investment scheme that is a part of a conventional provident fund plan. Employees, under this scheme, are enabled to offer contributions over and beyond the contribution threshold established by the Employee Provident Fund Organization (EPFO). It does not entail 12 percent of the salary that is contributed to the Employee Provident Fund (EPF). An employee can make contributions up to 100 percent of their Basic Salary and Dearness Allowance. It is recommended by the investment experts to invest in Voluntary Provident Fund (VPF) as it proposes an 8.5% rate of interest that is greater than the interest provided by the Public Provident Fund (PPF).

This is advantageous for organizations that have up to 100 workers and where at least 90 percent of those workers get a salary of less than Rs. 15,000/ month. For non-government organizations, the contributions have been lowered to 10 percent, which was 12 percent earlier. It is not mandatory for employees to make contributions to their VPF portfolio. Similarly, employers are also not obligated to render contributions to the scheme. As soon as the contributions have opted in VPF (Voluntary Provident Fund), they cannot be terminated or desisted before the threshold tenure of 5 years. The Government of India alone has the authority in the country to determine the interest rate of the Voluntary Retirement Plan at the beginning of every financial year.

Why You Should Invest in VPF Scheme?  

VPF is an excellent option for long-term investment that offers risk free higher returns. In addition, the investors can get exemption from taxes. This makes it an excellent retirement scheme for those looking to achieve financial independence. Apart from that, there are many other benefits of investing in VPF as mentioned below: 

Benefits of Voluntary Provident Fund: 

Easy-to-Open – As the EPF scheme is an extension of PF, the process of investing in EPF is simple. Employees can simply inform their employer that they want to invest in the voluntary provident fund. The current provident account will be treated as the VPF account. 

Easy to transfer: Employees can transfer their VPF account from one company to another in case of a job switch. 

Withdraw money anytime: Another benefit of opting for a VPF account is that the employees can withdraw the accumulated amount anytime they wish. Thus, the employees can also use the VPF account for short-term financial needs. 

Tax-Free Investment: The VPF scheme comes under the Exempt-Exempt-Exempt (EEE) category. This means that the investors can get tax benefits  of large amounts by investing for long-term. 

Risk-Free Investment: The VPF scheme comes under the government of India. Therefore, employees can get guaranteed fixed returns with zero risk involved. When compared with other long-term investment plans offered by private institutions, it is a much safer option. 

High Interest Rates: By investing in VPF, employees can get an interest rate as high as 8.5% per annum. Furthermore, the interest generated from this scheme is also exempted from taxes.