Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF) are close cousins. While EPF is compulsorily deducted for employees with a lower range of income in firms that have more than 20 employees, an employee can get any amount he/she wishes to contribute every month to VPF.
The word “voluntary” signifies that it is not a statutory obligation.
However, the objective of both EPF and VPF is to accumulate funds for the post-retirement years of an individual.
Difference between EPF and VPF
However, there is one important difference between the two. The employer has to mandatorily make a matching contribution to the EPF account of an employee. However, only the employee contributes to the VPF account.
Also, a part of the contribution of the employers to EPF is channelised to a pension account, which results in the employee getting a monthly pension after attaining 58 years. However, there is no pension component of VPF.
Only as lump sum
The entire fund accumulated in a VPF account is paid as a lump sum to the employee at retirement.
Let’s now calculate what an employee might get through VPF.
The interest rate that VPF carries is the same as EPF. The interest rate on EPF is decided every year by the Employees’ Provident Fund Organisation (EPFO).
The arithmetic
Let’s assume that VPF carries an interest rate of 8.1% and it remains unchanged throughout the tenure.
Let’s assume that a person begins work at 25 years of age and starts contributing Rs 5,000 to a VPF account.
If he/she retires at the age of 60, the contributions are made for 35 years.
The amount that would accumulate in the account when the employee turns 60 will be Rs 1,14,28,266 or more than Rs 1.14 crore.
Another scenario
An employee wakes up to the need of retirement planning much later and starts contributing to VPF at the age of 35.
In this case, he/she invests for only 25 years. Realising that he/she has to make up for lost time, contributes Rs 10,000 a month.
This employee would end up accumulating Rs 96,22,947 or Rs 0.96 crore in the VPF account.
Voluntary Provident Fund or VPF allows you to get the same interest as EPF. You can contribute any amount you want to VPF every month just like EPF. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
