Confounded by EPF vs VPF? It is natural to have questions when entering into the world of financial planning. Now, the communication mediums are filled with messaging on EPF and VPF without even divulging the basics- understanding VPF vs PF.
VPF vs PF
The Voluntary Provident Fund (VPF) and Provident Fund (PF) are both integral parts of an employee’s retirement planning in India. The PF is a mandatory savings scheme where both the employee and employer contribute a fixed percentage of the employee’s basic salary to the fund, ensuring a steady accumulation of savings over the working years. In contrast, the VPF is a voluntary extension of the PF, allowing employees to contribute more than the mandatory limit of up to 100% of their basic salary and dearness allowance.
This creates a space for VPF vs PF, where while PF contributions are capped by statutory limits, the VPF offers flexibility for employees to boost their retirement corpus with higher contributions. Benefitting from the same tax advantages and interest rates as the PF gives VPF a slight advantage in VPF vs PF. Additionally, when it comes to a comparison of VPF vs PF, while Both schemes aim to provide financial security post-retirement, VPF offers an additional avenue for those looking to enhance their savings.
Naturally, VPF has been gaining traction in VPF vs PF, in the financial management segment.
What is EPF?
The Employees’ Provident Fund (EPF) is a retirement savings scheme mandated by the government for salaried employees in India. It is managed by the Employees’ Provident Fund Organisation (EPFO). Employers and employees contribute 12% of the employee’s basic salary and dearness allowance to the EPF account each month. The contributions accumulate over time and earn interest, currently set at 8.5% per annum (as of the latest update).
Key Features of EPF:
- Compulsory Contribution: Both employer and employee contribute to the fund.
- Tax Benefits: Contributions to EPF are eligible for tax deduction under Section 80C of the Income Tax Act.
- Interest Accrual: The accumulated amount earns interest, compounded annually.
- Withdrawal Rules: Partial withdrawals are allowed under specific circumstances like medical emergencies, home purchases, or higher education. Full withdrawal is possible upon retirement or unemployment for more than two months.
What is VPF?
The Voluntary Provident Fund (VPF) is an extension of the EPF scheme, allowing employees to contribute more than the mandatory 12% of their basic salary. While EPF contributions are capped, VPF contributions can be up to 100% of the basic salary and dearness allowance.
Key Features of VPF:
- Voluntary Contributions: Employees can decide the contribution amount, up to 100% of their salary.
- High-Interest Rate: VPF offers the same interest rate as EPF, making it an attractive option for risk-averse investors.
- Tax Benefits: Contributions are eligible for tax benefits under Section 80C.
- Flexibility: Employees can choose to start or stop their VPF contributions at any time during the financial year.
EPF vs VPF: Key Differences
While initially it was VPF vs PF, EPF has slowly made an impact in financial management, taking significant importance
- Nature of Contributions:
- EPF: Mandatory for employees in eligible organizations.
- VPF: Voluntary, allowing employees to contribute beyond the statutory limit.
- Contribution Limits:
- EPF: Fixed at 12% of basic salary and dearness allowance.
- VPF: Can be up to 100% of the basic salary and dearness allowance.
- Employer Contribution:
- EPF: Employers must contribute an equal amount to the employee’s EPF account.
- VPF: Employers are not required to contribute.
- Flexibility:
- EPF: Less flexible due to mandatory contributions.
- VPF: Highly flexible, with contributions adjustable at any time.
- Tax Treatment:
- EPF and VPF: Both enjoy tax benefits under Section 80C. However, withdrawals from EPF before five years of continuous service are taxable, while VPF follows the same rules as EPF for taxation.
Benefits of EPF and VPF
Understanding the benefits of EPF and VPF is crucial for effective retirement planning.
Benefits of EPF:
- Retirement Corpus: Ensures a substantial corpus for retirement.
- Tax Savings: Contributions are tax-deductible.
- Risk-Free Investment: Offers a government-backed, low-risk investment option.
- Insurance Cover: Includes an insurance component under the Employees’ Deposit Linked Insurance Scheme (EDLI).
Benefits of VPF:
- Enhanced Savings: Allows for higher contributions, leading to a larger retirement corpus.
- High Interest: Offers the same interest rate as EPF, higher than many fixed-income instruments.
- Tax Advantages: Contributions qualify for tax benefits under Section 80C.
- Investment Control: Gives employees more control over their retirement savings.
The flexibility and control over contributions make VPF vs EPF an attractive choice for boosting your retirement savings.
EPF vs VPF: Making the Right Choice
Choosing between EPF and VPF depends on your financial goals, risk tolerance, and retirement planning strategy. If you seek a mandatory, employer-supported retirement savings option, EPF is essential. However, if you aim to enhance your retirement corpus with higher contributions and enjoy the same benefits as EPF, VPF is a valuable addition to your portfolio.
Way to proceed with PF- TrackMyPF
Now that you have delved into the crux of EPF vs VPF, what’s next?
Simplifying your PF journey with TrackMyPF by Finnable can greatly enhance your experience with EPF and VPF.
- Effortless Balance Tracking: With TrackMyPF, your current PF balance is just a tap away. Access it instantly, anytime, anywhere.
- Transparent Transaction History: TrackMyPF provides a clear and detailed history of all your PF contributions and withdrawals. See exactly where your money is going and coming from for complete peace of mind.
- Informed Financial Decisions: TrackMyPF lays out your available withdrawal options and the withdrawal process in simple terms. This knowledge allows you to strategically manage your finances and make informed decisions about your PF.
- Planning for Tomorrow, Today: Gain valuable insights into your PF’s projected growth over time. TrackMyPF’s future growth projections help you plan for your financial security and make informed decisions about your retirement goals.
Understanding the nuances of EPF vs VPF and their respective benefits can empower you to make the right choices for your retirement planning. By leveraging tools like Finnable’s TrackMyPF, managing your EPF and VPF becomes a seamless and informed process, ensuring your financial future is secure and prosperous.
