EPF Vs VPF: How Much More Can You Earn with A ₹25,000 Basic Salary by Choosing VPF?
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Salaried professionals planning for a financially secure retirement often rely on structured savings schemes, and among the most prominent are the Employees' Provident Fund (EPF) and the Voluntary Provident Fund (VPF). While both cater to retirement goals and offer interest-based returns, their mechanics and growth potential differ significantly. Understanding the contrast between these two schemes is essential to optimise one’s retirement strategy—especially for those starting their careers with a monthly income around ₹25,000. According to experts, the right contribution mix could result in a corpus difference of nearly ₹90 lakh by retirement.
Understanding the Basics of EPF
The Employees’ Provident Fund is a government-backed scheme specifically designed for retirement savings among salaried workers. Contributions to EPF are mandatory for employees earning above a specified threshold, with 12% of the basic salary and dearness allowance (DA) deducted from the employee's side. The employer matches this amount, although part of their contribution is diverted towards the Employee Pension Scheme (EPS).This dual contribution ensures that both the employee and employer collectively help in building a steady retirement corpus. Contributions to EPF enjoy tax exemptions under Section 80C, making it a tax-efficient savings option. The interest rate, revised annually, compounds over time to support long-term wealth accumulation.
How VPF Works Differently
The Voluntary Provident Fund acts as an extension of the EPF. It allows employees to voluntarily contribute more than the mandatory 12% of their basic salary and DA. Contributions can go up to 100% of this amount, but unlike EPF, there is no matching employer contribution in VPF.Despite this, VPF offers the same interest rate as EPF and carries the same tax benefits. It’s a preferred option for those who want to maximise their retirement corpus using a safe, government-regulated platform. According to experts, VPF is often chosen by financially disciplined employees who can afford to set aside more than the mandatory amount each month for long-term gains.
EPF vs VPF : Key Differences
One of the core differences between EPF and VPF lies in their nature—EPF is compulsory, while VPF is entirely optional. EPF involves joint contributions from the employee and employer, whereas VPF is funded solely by the employee.Additionally, while EPF restricts employee contributions to 12% of the basic salary and DA, VPF permits up to 100%, offering significantly higher long-term growth potential. Taxation-wise, both EPF and VPF become partially taxable if the annual contribution exceeds ₹2.5 lakh, with interest on the excess being taxable.
What Happens If You Start Early? A 25-Year Outlook
To understand the long-term impact of choosing VPF over just sticking to EPF, let’s consider an individual who starts saving at the age of 25 with a basic salary of ₹25,000. Assuming a 5% annual salary hike and current interest rates:EPF Scenario:
- Monthly contribution: ₹3,000 (12% of ₹25,000)
- Total investment over the years: ₹45.05 lakh
- Interest earned: ₹1.35 crore
- Estimated corpus at retirement: ₹1.81 crore
- Monthly contribution: ₹5,000
- Total investment: ₹68.05 lakh
- Interest earned: ₹2.05 crore
- Estimated corpus at retirement: ₹2.73 crore
Should You Choose VPF?
While EPF ensures a compulsory retirement fund build-up, VPF is for those looking to boost their financial cushion beyond the minimum. It is ideal for salaried individuals with low-risk tolerance who want to enhance savings without turning to volatile investment options like equities.Experts caution, however, that VPF contributions should be planned alongside other tax-saving investments to avoid breaching the ₹2.5 lakh annual contribution cap, which could make the interest partially taxable.
Moreover, because VPF is tied to the EPF account, withdrawals are subjected to similar rules—early access is restricted, and tax benefits apply only after five years of continuous service.
Both EPF and VPF play vital roles in a salaried individual’s retirement planning strategy. While EPF is a solid foundation, adding VPF can significantly increase the end corpus for those who start early and contribute consistently. As experts suggest, making informed decisions and aligning contributions with long-term goals can transform modest monthly savings into a substantial post-retirement income.
Disclaimer: This article is for informational purposes only. Investment decisions should be based on individual financial goals and risk appetite. Please consult a qualified financial advisor before making any investment.