Maintaining a sturdy financial future is crucial for everyone, positioning various types of savings and investment plans in the good books of earners. One such option that has gained immense popularity for its myriad of benefits is the Voluntary Provident Fund (VPF).
The Voluntary Provident Fund is an extension of the Employee Provident Fund. While the EPF is a mandatory savings scheme for all Indian employees, VPF is not compulsory. The former comes with a capped contribution limit while the latter does not have such an upper ceiling, allowing individuals to invest a higher share of their earnings. So, if you are someone who is seeking a secure way to increase your provident fund corpus, VPF could be a preferable option for you.
Understanding Voluntary Provident Fund
Before moving on to the process of contributing to VPF, it’s necessary to understand what exactly VPF is and why it is beneficial. The idea is simple, VPF is an extension of EPF but is completely voluntary. It is essentially a tool to encourage individuals to save more money in a structured manner.
The advantage of VPF is that it ensures a higher return compared to a regular savings account, with the interest rate for 2020-21 set at 8.5%. Moreover, these contributions get tax exemptions under Section 80C, and all interest earned is also tax-free as long as the fund isn’t withdrawn before five years.
Contributing to a Voluntary Provident Fund
1. Knowing How Much to Contribute:
An employee can contribute up to 100% of his/her basic salary and dearness allowance towards VPF. There, however, is no obligation to invest a particular amount. That choice entirely depends on the individual’s financial capability.
2. Filling up the VPF Declaration Form:
To commence VPF, the first step would be to fill and submit the VPF declaration form provided by the employer. Ask your HR or Payroll department for this, fill it in with the specified amount you wish to contribute monthly and submit it back.
3. Regular deduction:
Once the declaration has been approved, the specified voluntary provident fund amount will be deducted from your salary every month. The deducted amount will be transferred directly to your EPF account.
4. Checking your Account:
You will receive a monthly statement which details the amount deducted from your salary and added to your VPF account.
In conclusion, the Voluntary Provident Fund is a highly recommended tool for systematic and beneficial savings. It not only allows you to multiply your savings in a disciplined manner but also provides you with various tax benefits. The organized and steady nature of this saving option makes it perfect for risk-averse earners who want to be prepared for a secure retirement.
Disclaimer: Financial investments require due diligence and awareness of the risks involved, including the potential loss of principal. This article does not represent financial advice. It is always wise to seek advice from a financial advisor or conduct your own research before making any significant financial decisions.
Summary:
The Voluntary Provident Fund (VPF) is a systematic and beneficial savings tool highly recommended for risk-averse earners seeking financial security in retirement. An extension of the Employee Provident Fund (EPF), it allows individuals to voluntarily contribute a part of their salary while providing an opportunity for a higher return compared to regular savings accounts. The interest rate for 2020-21 is 8.5%, and the contributions and returns are tax-exempt under Section 80C. To make contributions, complete the VPF declaration form provided by employers and specify the monthly contribution. The designated amount is then deducted regularly from the salary and accounted for in a monthly statement. However, potential investors are advised to research thoroughly or seek qualified financial advice as financial investments are subject to risks, including potential loss of the principal amount.
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