Saving for retirement is the last goal on the financial road that a salaried employee expects. That’s where Employee Provident Fund becomes important. Employee Provident Fund sounds attractive with your employer matching your contribution and a tax free guaranteed return of 8.5%. Assuming you are 25 years and earn 20000 per month, if you contribute 12% of your basic plus dearness allowance every month, and the employer matches with his contribution, by the time you retire, you would be able to save 1.38 crore (assuming that the interest rates remain the same 8.5% and you get a modest salary hike of 5% every year).
Your entry in the EPF book of accounts is under your current employer and you are eligible to take the amount from your EPF account two months after you quit the job. Instead of withdrawing the amount, you can also transfer the amount to your new EPF account created under your new employer. The process of transferring your PF amount will ideally take 30 days.
Keeping the advantages of EPF in mind the Government of India has introduced VPF – Voluntary Provident Fund contribution.
Voluntary Provident Fund (VPF): VPF is a safe option wherein you can contribute more than the PF ceiling of 12% that has been mandated by the government. This additional amount enjoys all the benefits of PF except that the employer is not liable to contribute any extra amount apart from 12%. An added advantage is that the interest rate is equal to the interest rate of PF and the withdrawal is tax free. Please note that the maximum contribution towards VPF is 100% of your Basic. The highest rate of interest (close to 9%) makes it a very attractive saving scheme. Because of these advantages many employees chose not to close their PF account even after getting employment else where other than India. Employees also get a major tax break on their entire contribution to the fund (tax rebate under section 88 ) up to a ceiling of Rs. 70,000/-
Other benefits include - employees can take a loan against the amount accumulated in the fund. However availing of loans depend on permissible rules and circumstances and they can access money for reasons such as housing, marriage, children’s education etc. An employee can withdraw the VPF amount in between of his/her service and need not necessarily wait till the end of employment and there is an option of break in the contribution in certain months when the expenses are expected to be higher.
So, let us use this opportunity and opt for Voluntary Provident Fund along with EPF contribution and enjoy the benefits to the maximum!