New Delhi: Voluntary Provident Fund (VPF) is one of the best guaranteed-return instruments that an Indian can resort to in order to increase his savings. It is a part of EPF, or Employee’s Provident Fund. The only limiting factor is that it is available only to someone who is employed and is a contributor to EPF. VPF is also administered by the EPFO or Employee’s Provident Fund Organisation.
The word ‘voluntary’ in VPF implies that it is not a statutory obligation like EPF, but one can contribute in a VPF account voluntarily. The real advantage is the security and the relatively high interest rate that EPF provides every year that is also applicable to VPF. Let’s now see how one can use the combination of EPF and VPF to generate a significant corpus at the age of 58.
Calculation of EPF
Suppose a young man starts to work at the age of 25 years. He earns a basic salary + DA (dearness allowance) of Rs 25,000. From the very first month contributions both from the employer and his own salary flow into this Employees’ Provident Fund or EPF account.
The online EPF calculator will tell you that if this person goes on working till the age of 58 years, an amount of no less than Rs 1,75,58,980 (Rs 1.75 crore) will be deposited in the EPF account. There are only 2 assumptions – one, that the person will get an increment of 5% every year and that the EPFO will pay interest at the rate of 8.25% (as it did in FY24). The person will also get a monthly pension from the age of 58 but we are not calculating it at present.
Factoring in VPF; the total corpus
We have already said that VPF will bear the same interest as EPF. This rate is determined every year by the EPFO. If this person invests the same amount in his VPF as goes to the EPF, the VPF account will also amass the same amount. The only difference between EPF and VPF is that the employer does not contribute anything to the EPF and there is no provision of pension from VPF. Therefore, combining the EPF and VPF accounts the person would generate a total amount of more than Rs 3.5 crore and with the highest degree of security.
