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Employees Provident Fund (EPF) is the safest means of mandatory savings for employed employees, in which 12% of the basic pay (Basic Pay + DA) is deposited by the employee and 12% by the employer. But if an employee wants to invest more than the prescribed limit in his PF account for retirement, then he Voluntary Provident Fund (VPF) Is the best option.
Under VPF, you can deposit up to 100% of your basic pay and dearness allowance. For this, no new account is opened separately, rather this amount is deposited in your existing Universal Account Number (UAN) and EPF account only. The most important thing is that on this also only the regular interest rate decided by EPFO (currently 8.25% per annum) is available, on which the full benefit of compound interest is available.
If, apart from the mandatory PF deduction from your monthly salary, you deduct only an additional amount of ₹ 5,000 through VPF every month, then the fund created through the power of compounding in 20 years will be as follows:
| Description | calculations/statistics |
| Monthly Additional Savings (VPF Contribution) | ₹5,000 per month |
| annual total investment | ₹60,000 per year |
| Total investment period | 20 years (240 months) |
| Applicable estimated interest rate | 8.25% per annum (EPFO rate) |
| Total Deposit in 20 Years | ₹12,00,000 (Rs 12 lakh) |
| Total interest earned from compounding (Wealth Gain) | ₹18,52,550 (Approximately Rs 18.52 lakh) |
| Total Maturity Corpus after 20 years | ₹30,52,550 (Approximately Rs 30.53 lakh) |
Thus, the total capital deposited by you in 20 years will be ₹12 lakh, but due to the 8.25% annual interest paid by the government, you will get more than ₹18.52 lakh only as interest. That means your total retirement fund will be ready to the tune of more than ₹30.5 lakh.
How a regular investment in VPF grows exponentially over a long period of time can be understood from the table given below, time-wise:
| period (years) | Total Deposit Amount (₹) | Total Interest Earned (₹) | Total Fund Value (₹) |
| 5 year | ₹3,00,000 | ₹73,280 | ₹3,73,280 |
| 10 years | ₹6,00,000 | ₹3,35,420 | ₹9,35,420 |
| 15 years | ₹9,00,000 | ₹8,74,660 | ₹17,74,660 |
| 20 years | ₹12,00,000 | ₹18,52,550 | ₹30,52,550 |
It is clear from the table that the amount of interest in the first 10 years was ₹ 3.35 lakh, but between 15 and 20 years, the effect of compounding is so tremendous that in the last 5 years the speed of interest becomes much faster than the principal amount.
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Government Guarantee and Secure Returns: The money deposited in VPF remains completely safe under the rules of EPFO and there is no negative impact of stock market fluctuations on it.
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Benefits of Section 80C of Income Tax: The amount deposited in VPF is eligible for annual tax exemption under Section 80C of the Income Tax Act up to ₹1.5 lakh (if old tax regime is opted).
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Tax-free interest limit of ₹2.5 lakh: According to income tax rules, if the total deposit including the employee’s own PF and VPF contributions in a financial year exceeds ₹ 2,50,000 (Rs 2.5 lakh), then the interest on the excess amount is taxable. By depositing ₹60,000 annually (i.e. ₹5,000 per month), your contribution remains within this ₹2.5 lakh limit, so the entire interest will be completely tax-free.
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Easy Withdrawals and Transfers: On changing jobs, VPF amount can also be easily transferred to the new company through UAN, like EPF. Withdrawals of VPF after 5 years of continuous service also remain completely tax-free.
The process to start VPF is extremely simple:
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You do not need to go to any bank or outside office.
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Contact your organization’s HR or finance/payroll department.
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Fill the ‘VPF Request Form’ given by the institute, mentioning that you want to deduct an additional ₹ 5,000 from your basic salary every month as VPF.
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As soon as the application is approved, this amount will be deducted from the next month’s pay slip and will start being added directly to your PF account.