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Voluntary Provident Fund vs PPF: Not 8%, get 8.65 % interest! Know why you should raise VPF contribution
If you are looking to invest in Public Provident Fund (PPF) to save tax under Section 80C and receive big returns in the long run, then you should consider the additional advantage of Voluntary Provident Fund (VPF).
Voluntary Provident Fund: If you are looking to invest in Public Provident Fund (PPF) to save tax under Section 80C and receive big returns in the long run, then you should consider the additional advantage of Voluntary Provident Fund (VPF) which provides same tax benefits and financial safety with better returns. VPF is also often referred to as the Voluntary Retirement Fund. It is basically the voluntary fund contribution from the employee towards his provident fund account. Only private and government sector employees who contribute to EPF and GPF can invest in VPF.
Jitendra Solanki, a SEBI-registered investment expert, recently told Zee Business Online, "VPF gives higher returns than PPF, bank fixed deposit and 5-year NSC or national savings certificate. While PPF and 5-year NSC give 8 per cent return at the current rate, fixed deposits attract an even lower rate of 7.5 per cent. That is why it (VPF) can be a secured investment avenue for maximising the retirement benefits."
The Employees’ Provident Fund Organisation (EPFO) raised the EPF interest rate to 8.65 per cent for the last financial year 2018-19, which was 8.55 per cent earlier. The VPF interest rate is same as EPF as it is also deducted from employee' salary, in case someone opts for it.
Comparing VPF with PPF
The interest rate on PPF has been fixed at 8 per cent p.a for the first quarter of the current financial year 2019-20, starting from 1st April 2019 to 30 June 2019.
Now, if EPFO holds the interest rate of 8.65 per cent for FY2020 also, VPF will bag you an additional return of 0.65 per cent compared to PPF. But, if PPF rates are revised quarterly and VPF/EPF rates are revised annually at the end of the financial year, history shows VPF leads to better returns.
Jain also said, "VPF should be in employees' portfolio as early as possible early as this will help them reap better retirement benefits. However, employees at a young age may keep more high-return investments like mutual funds and equities in their portfolio."
VPF comes with some withdrawal restrictions and full withdrawal is possible only at the time of retirement. Also, if an account holder regularly invests into the scheme for five years then he/she gets tax exemption too.
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