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It is very important to invest, and invest wisely. The government, banks and financial companies, all offer various savings schemes to encourage people to invest their money for a specified period of time and earn periodic returns on their investments. If you invest prudently, knowing the pros and cons of various investment options, you can ace your financial planning endeavours. Here are the best investment schemes that will ensure that you have sufficient savings for your future financial needs.
Advantages of Saving Schemes in India
Saving anything (money mostly) can be considered part of the Indian tradition that attributes to responsible and cultured living. The point wherein an individual earns his/her first salary and opens up a small savings account, the person is considered to be all ‘grown-up’ and many shades better than his/her careless, spendthrift and antisocial self from the teenage and late adolescent years.
Reasons for opting Saving Schemes
Types of Saving Schemes in India
Public Provident Fund (PPF)
The Public Provident Fund is a savings-cum-tax-saving instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968. The aim of the scheme is to mobilize small savings by offering an investment with reasonable returns combined with income tax benefits. The scheme is fully guaranteed by the Central Government. Balance in PPF account is not subject to attachment under any order or decree of court. However, Income Tax & other Government authorities can attach the account for recovering tax dues.
How to open a PPF account?
A PPF account can be opened with either a Post Office or with any nationalized banks like the State Bank of India and Punjab National Bank. These days, even certain private banks like ICICI, HDFC and Axis Bank among others are authorized to provide this facility. Submit the duly filled application form along with the required documents i.e. the KYC documents like identity proof, address proof, and signature proof. And then deposit a prescribed amount towards the opening of the account.
Features of PPF
The PPF has a minimum tenure of 15 years, which can be extended in blocks of 5 years as per your wish.
PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year. Investments can be made in lump sum or in a maximum of 12 installments.
The account can be opened with just Rs 100. Annual investments above Rs 1.5 lakh will not earn interest and will not be eligible for tax saving.
Deposit into a PPF account has to be made at least once every year for 15 years.
Mode of deposit:
The deposit into a PPF account can be made either by way of cash, cheque, Demand Draft or online fund transfer.
A PPF account holder can designate a nominee for his account either at the time of opening the account or subsequently too
A PPF account can be held only in the name of one individual. Opening an account in joint names is not allowed
Since PPF is backed by the Indian government, it offers guaranteed, risk-free returns as well as completes capital protection. The element of risk involved in holding a PPF account is minimal.
Who can invest in PPF?
Any Indian citizen can invest in PPF. One citizen can have only one PPF account unless the second account is in the name of a minor. NRIs and HUFs are not eligible to open a PPF account.
Loan against PPF:
You can take a loan against your PPF account between the 3rd and 5th year. The loan amount can be a maximum of 25% of the 2nd year immediately preceding the loan application year. A second loan can be taken before the 6th year if the first loan is repaid fully.
What is the interest rate on PPF?
The current interest rate is 7.6% that is compounded annually. The Finance Ministry set the interest rate every year, which is paid on 31st March. The interest is calculated on the lowest balance between the close of the fifth day and last day or every month.
While the minimum annual amount required to keep the account active is Rs 500, the maximum amount that can be deposited in a financial year is Rs 1.5 lakh. One can open a PPF account in one’s own name or on behalf of a minor of whom he is the guardian. This is the combined limit of self and minor account.
If contributions are in excess of Rs 1.5 lakh in a year, the excess deposits will be treated as irregular and will neither carry any interest nor will this excess amount be eligible for tax benefit under Section 80C. This excess amount will be refunded to the subscriber without any interest.
Procedure for withdrawal from PPF
In case you wish to partially or completely withdraw the balance lying in your PPF account, you can do so by submitting an application for withdrawal in Form C with the concerned branch of the bank where your PPF account lies.This form has 3 sections:
It is also mandatory to enclose a copy of the PPF passbook along with this application.
Post Office Savings Scheme
India Post, the postal system of the country, offers several savings schemes which not only require modest contribution but also offer attractive investment return. Five savings schemes of India Post – savings account, recurring deposit account, fixed deposit account, monthly investment scheme, and sukanya samriddhi account, offer interest rates ranging from 4 per cent to 8.1 per cent. Besides decent annual returns, some of these schemes also offer income tax benefits under Section 80C of the Income Tax Act.
In the Indian context, the legendary Indian Postal system has always played a key role in helping inculcate the habit of financial savings amongst the Indian public. The local post office is seen as more approachable (especially amongst the semi-urban and rural folks) and more customer friendly in terms of higher returns and limited inherent procedures. The Post Office Saving Schemes include a plethora of products that offer the reliability associated with a government run savings portfolio, and the full-scale treatment that is characteristic of most high-end saving and investment schemes in India. Fair lists of such products are as follows-
Post Office Savings Account
Interest payable, Rates, Periodicity etc. – 4.0% per annum on individual / joint accounts
Minimum Amount for opening of account and maximum balance that can be retained – Minimum INR 20/- for opening
Features of Post Office Savings Account
5 Years Post Office Recurring Deposit Account
Interest payable, Rates, Periodicity etc.
From 1.01.2018, interest rates are as follows:-
Minimum Amount for opening of account and maximum balance that can be retained
Minimum INR 10/- per month or any amount in multiples of INR 5/-. No maximum limit.
Features of 5 Years Post Office Recurring Deposit Account
Post Office Time Deposit Account
Interest payable, Rates, Periodicity etc – Interest payable annually but calculated quarterly.
Minimum Amount for opening of account and maximum balance that can be retained – Minimum INR 200/- and in multiple thereof. No maximum limit.
Interest rates From 1.01.2018
Features of Post Office Time Deposit Account
Post Office Monthly Income Account Scheme
Interest payable, Rates, Periodicity etc. – From 1.01.2018, interest rates are as 7.3% per annum payable monthly.
Minimum Amount for opening of account and maximum balance that can be retained-
Features of Post Office Monthly Income Account Scheme
Senior Citizens Saving Scheme
Interest payable, Rates, Periodicity etc.- From 1.07.2017, interest rates are as follows:-
8.3% per annum, payable from the date of deposit of 31st March/30th Sept/31st December in the first instance & thereafter, interest shall be payable on 31st March, 30th June, 30th Sept and 31st December.
Minimum Amount for opening of account and maximum balance that can be retained- There shall be only one deposit in the account in multiple of INR.1000/- maximum not exceeding INR 15 lakh.
Features of Senior Citizens Saving Scheme
15 Years Public Provident Fund Account
Features of 15 Years Public Provident Fund Account
Interest payable, Rates, Periodicity etc – From 1.01.2018, interest rates are as follows:-
7.6% per annum (compounded yearly).
Minimum Amount for opening of account and maximum balance that can be retained
Minimum INR. 500/- Maximum INR. 1,50,000/- in a financial year. Deposits can be made in lump-sum or in 12 installments.
National Savings Certificates
National Savings Certificates (NSC)
7.6% compounded annually but payable at maturity.
Minimum of Rs. 100/- and in multiples of Rs. 100/
Salient features of National Savings Certificates (NSC)
5 Years National Savings Certificate (VIII Issue)
Interest payable, Rates, Periodicity etc.- INR 100/- grows to INR 144.23 after 5 years.
Minimum Amount for opening of account and maximum balance that can be retained-No Maximum Limit
Salient features of 5 Years National Savings Certificate (VIII Issue)
Kisan Vikas Patra (KVP)
Interest payable, Rates, Periodicity etc. – From 1.01.2018, interest rates are as follows:-
Minimum Amount for opening of account and maximum balance that can be retained- Minimum of Rs. 1000/- and in multiples of Rs. 1000/- No Maximum Limit.
Features of Kisan Vikas Patra (KVP)
Sukanya Samriddhi Account
Interest payable, Rates, Periodicity etc – Rate of interest 8.1% Per Annum (with effect from 1-01-2018),calculated on yearly basis ,Yearly compounded.
Minimum Amount for opening of account and maximum balance that can be retained- Minimum INR. 1000/-and Maximum INR. 1,50,000/- in a financial year. Subsequent deposit in multiple of INR 100/- Deposits can be made in lump-sum No limit on number of deposits either in a month or in a Financial year
Features of Sukanya Samriddhi Account
Kisan Vikas Patra (KVP)
First launched in 1988, the Kisan Vikas Patra (KVP) is one of the premier and popular saving scheme offering from the Indian Postal Department. This product has had a very chequered history- initially successful, deemed a product that could be misused and thus terminated in 2011, followed by a triumphant return to prominence and popular consumption in 2014.
Kisan Vikas Patra Scheme
Features and Benefits of Kisan Vikas Patra
There are numerous kisan vikas patra benefits that one can receive by investing in this scheme; some of which are:
Who should invest in the KVP scheme?
Any Indian citizen above age 18 can buy a Kisan Vikas Patra from the nearest post office. People from rural India (with no bank account) find this particularly appealing. You can also buy one for a minor or jointly with another adult. Don’t forget to mention the date of birth of the minor and the name of the parent/guardian. A Trust can also buy one, but not an HUF or an NRI.
KVP is a good choice for risk averse individuals, who have surplus money, which they may not require in the near future. It all depends on your risk profile and goals. For instance, people seeking tax-saving schemes have better options like Public Provident Fund, National Saving Certificates and tax saving bank FD Schemes. If you are open for some level of risk exposure, you have the Equity Linked Savings Scheme (ELSS). Hence, play to your financial strengths.
How to invest in Kisan Vikas Patra & the documents required
Investing in Kisan Vikas Patra is simple, as mentioned below.
Collect the application form (Form-A) and submit it duly filled to the PO. If the investment in KVP is through an agent, then the agent should fill Form-A1. You can download these forms online. The Know Your Customer (KYC) process is mandatory and you need to submit the ID proof copy (PAN, Aadhaar, Voter’s ID, Driving License or Passport). Once they verify the documents and receive the deposit, you will get a KVP certificate. Keep this safe as you will need to submit this at the time of maturity. You can also request them to send you the certificate by email.
In short, if Kisan Vikas Patra seems like a worthwhile investment that matches your financial goals, invest immediately. It is easy enough to open and manage. All you need to do is have the amount ready and pay one visit to the nearest post office.
Pre-mature Withdrawal of Kisan Vikas Patra
Kisan Vikas Patra scheme allows an investor to withdraw from the scheme before the maturity date. The lock-in period for pre-mature withdrawal is 2 years and 6 months. The investor can appeal the post office or the bank branch and submit the application for pre-mature withdrawal. However, the amount will also be paid prior to the lock-in period in the following cases-
The maturity proceeds will be credited to the savings bank account. The interest accrued on the amount is taxable.
Click here to calculate income tax payable.
The following documents must be submitted by the applicant at the time of maturity of certificate.
Sukanya Samriddhi Account
Sukanya Samriddhi Yojana is a new scheme launched in the year 2014 by Prime Minister Narendra Modi. The Sukanya Samriddhi Account scheme was launched with an initial interest rate of 9.10% p.a. for the year 2017-2018. This has been increased to 9.20% p.a. for the current fiscal 2015-16.Sukanya Samriddhi Yojana interest rate is revised on a yearly basis and hence for FY 2016-17 it has been revised 8.6%.
On 23 July 2018, the criteria for minimum annual deposit for the Sukanya Samriddhi Yojana account has been revised to Rs.250 from the earlier amount of Rs.1,000. Also the interest rate for the July-September quarter is 8.1%.
A premier saving scheme offering from the Indian Ministry of Finance, the Sukanya Samriddhi Yojana (SSY) Accounts are aimed at ensuring a bright future for the girl children in India. This ambitious and resourceful scheme was launched by the honorable Prime Minister of India, Mr. Narendra Modi, and has quickly emerged as a popular “Savings Scheme” that aims to provide financial backing for a girl child’s varied, lifelong aspirations.
The thoughtful features of this scheme are as follows-
Benefits of Sukanya Samriddhi Account
Apart from the higher interest rates, some of the other Sukanya Samriddhi scheme Benefits are as follows:
The SSA is unique in the fact that it is a scheme that offers financial security and growth, in addition to creating awareness on the well-being of the girl child.
Sukanya Samriddhi 9.2% Interest: Maturity Amt. Calculation
The application process for the Sukanya Samriddhi scheme is very simple and requires the parents of the child to submit certain documents, such as:
The amount that the child receives on maturity of the policy is totally tax-free. There will also be no tax on the investments made towards the scheme.
If you are the parent of a girl child who has decided to invest in this scheme, the maturity amount that you can avail when you start contributing from the financial year 2015-16 is as follows. The interest rate considered for this calculation is 9.2%.
How is the interest rate on deposits calculated?
The government fixes interest rates on quarterly basis based on the G-sec yields. The interest rate spread that the SSY enjoys over the G-sec rate of comparable maturity is 75 basis points.
The interest rate since its launch is as follows:
From April 1, 2014: 9.1%
From April 1, 2015: 9.2%
From April 1, 2016 -June 30, 2016: 8.6%
From July 1, 2016 -September 30, 2016: 8.6%
From October 1, 2016-December 31, 2016: 8.5%
From July 1, 2017- December 31, 2017: 8.3%
From January 1, 2018 – March 31, 2018 : 8.1%
From April 1, 2018 -June 30, 2018: 8.1%
From July 1, 2018 -September 30, 2018: 8.1%
How it works?
The account is opened and operated by the natural or legal guardian of the girl child in her name till she turns 10.
When she turns 10, the girl child can operate the account herself; however, deposit in the account may be made by the guardian or any other person or authority.
What is the mode of deposit?
The deposit in the account can be made in cash or by cheque or demand draft and an endorsement on the back of such instrument has to be made and signed by the depositor, indicating the name of the account holder and the account number in which the deposit is to be credited.
Deposits may also be made through electronic means (e-transfers) in the concerned post office or banks if there is CBS (core banking solutions) availability in them.
In case the deposit is made by cheque or demand draft, the date of encashment of the cheque or demand draft is the date of credit to the account, while for e-transfer, it is the date of deposit.
What are the rules for opening Sukanya Samriddhi Account?
The account can be opened by the natural or legal guardian in the name of the girl from her birth till she turns 10.
A depositor may open and operate only one account in the name of the girl child under these rules. One can’t open two accounts for one girl.
The birth certificate of the girl in whose name the account is opened should be submitted by the guardian at the time of the opening of the account in the post office or bank, along with other documents relating to identity and residence proof of the depositor.
Atal Pension Yojana
Named after one of India’s most popular erstwhile Prime Ministers, the Atal Pension Yojana is aimed squarely at the weaker sections of the society as well as those individuals who can benefit from a government sponsored welfare program. The central premise of this scheme is to provide the pension option to individuals who are working in the unorganized professional sectors and aren’t covered by any regular pension plans. Applicants pay a very low premium and enjoy the fruits of a robust and reliable pension plan.
Benefit of Atal Pension Yojana
APY provides guaranteed pension of Rs 1,000 to Rs 5,000 (as explained above) to the subscribers. The scheme also allows a subscriber to decrease or increase pension amount during the course of accumulation phase, once an year.
In case of death of subscriber, the spouse of the subscriber shall be entitled for the same amount of pension till his or her death. And after the demise of both spouse and subscriber, the nominee will be entitled to receive the pension money that the subscriber, the nominee will be entitled to receive the pension money that the subscriber had accumulated till 60 years of age.
Restrictions on government contribution
However if you are a part of any other social security scheme and a tax payer, then you are not entitled for government contribution. For instance, members of the Social Security Schemes under the following enactments would not be eligible to receive Government co-contribution:
Atal Pension Yojana (APY) is open to all bank account holders. The Central Government would also co-contribute 50% of the total contribution or Rs. 1000 per annum, whichever is lower, to each eligible subscriber account, for a period of 5 years, i.e., from Financial Year 2015-16 to 2019-20, who join the NPS between the period 1st June, 2015 and 31st December, 2015 and who are not members of any statutory social security scheme and who are not income tax payers. However the scheme will continue after this date but Government Co-contribution will not be available.
The Government co-contribution is payable to eligible PRANs by PFRDA after receiving the confirmation from Central Record Keeping Agency at such periodicity as may be decided by PFRDA.
Features of the Atal Pension Yojana
Age of joining and contribution period 4.1 The minimum age of joining APY is 18 years and maximum age is 40 years. The age of exit and start of pension would be 60 years. Therefore, minimum period of contribution by the subscriber under APY would be 20 years or more.
How to apply?
Approach the bank branch/post office where your savings bank account is held or open a savings account if you don’t have one and fill up the APY registration form.
If you are a net savvy user, you can get enrolled for APY through your savings account directly using internet banking and choose auto debit facility for your contributions. The premium will be debited from your age of enrolment till 60 years.
While, leading banks in the country like SBI and ICICI are offering this facility through net banking, this online option is not available with all the banks and you may have to pay a visit to your bank to get enrolled.
How to apply for APY using SBI online
Login to your net banking account. Select ‘Social Security Schemes’ under ‘My Account’ tab. A new page will appear on your screen. Click ‘select scheme’ dropdown and choose Atal Pension Yojana. Then select your savings account number that you want to link with the scheme and submit. As soon as you submit this page, you get an option to select the Customer Identification (CIF) number. Select the CIF generated which is system generated and submit.
After this step, an e-form will appear on your screen. Follow the instructions given on the screen. Your bank details and personal information shared with the bank during the time of opening your account will be picked automatically. However there will be a few tabs seeking additional contact information like email address, Aadhar number which was not made available to the bank while opening the account. It is not mandatory to provide Aadhaar number for opening APY account. It is however desirable to provide Aadhaar Number for proper identification of the subscriber. Below the personal details tab, you’ll get the option of filing the nominee details. After filing the nominee details select the pension details; Pension amount, Contribution Periodicity which can be monthly, quarterly or half yearly and the contribution amount. Fill in all the details carefully and submit and download the acknowledgement.
You may e-subscribe for APY with a few clicks, but there’s no option to unsubscribe for it online. To discontinue APY, you need to visit your bank’s home branch which involves a little paperwork and can be a tiresome task.
Penalties for default
Deduction would be made in the subscribers account for account maintenance charges and other related charges on a periodic basis. Once the account balance in the subscriber’s account becomes zero due to deduction of account maintenance charges, fees and overdue interest, the account would be closed immediately. If there’s a continuous default for 6 months, you pension account will be freezed and if there’s a continuous default for 12 months, the account will get closed and whatever balance is left after the above said deductions will be given to the subscriber.
For delayed contributions a penalty of Rs. 1 per month for contribution of every Rs. 100, or part thereof, for each delayed monthly contributions. This implies:
Rs.1 per month for contribution upto Rs.100 per month.
Rs.2 per month for contribution upto Rs.101 to 500 per month.
Rs.5 per month for contribution between Rs.501 to 1000 per month.
Rs.10 per month for contribution beyond Rs.1001 per month.
Withdrawal procedure from APY
Upon completion of 60 years of age:
After attaining the age of 60 years, you need to get in touch with your respective bank or post office and submit the request for drawing the pension.
However, if in case of subscriber’s death after 60 years, the same amount of monthly pension is payable to spouse (default nominee). Nominee will be eligible for return of pension wealth accumulated till age 60 of the subscriber upon death of both the subscriber and spouse.
Exit before the age of 60 Years:
As per circular dated May 2, 2016 on PFRDA website, voluntary exit in APY is generally not permitted. However in case of exceptional circumstances such as terminal illness, or death of the subscriber it can be allowed. In case a subscriber, who has availed Government co-contribution under APY, along with the net actual accrued income earned on his contributions (after deducting the account maintenance charges). The Government co-contribution, and the accrued income earned on the Government co-contribution, shall not be returned to such subscribers.
Employee Provident Fund (EPF)
Administered by the Employees’ Provident Fund Organization (EPFO), the Employee Provident Fund (EPF) targets Indian workers through a system of compulsory monetary contribution into a specified ‘provident fund’ account that will act at a later date as their retirement fund, or could also be treated as emergency funds for unforeseen or planned financial requirements. In essence, the employer and employee each contribute 12% of the latter’s salary amount into this provident fund account on a monthly basis. EPF is one of the shining success stories when it comes to government sponsored saving schemes in India with massive popularity and vast implementation.
The interest rate applicable on the amount accumulated in the EPF account is decided by the government and has traditionally ranged between 8-12% of the funds maintained in the account. The interest is credited to the concerned account on the 1st April each year. The EPFO office sends annual reports through the employer that the concerned employee can use to get clear bearings on the amount accumulated in his/her account. Also, EPF related information can be sourced from the EPFO’s official website.
The Employees’ Provident Fund (EPF) is a savings tool for the workforce. It is a scheme managed under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, by the Employees’ Provident Fund Organisation (EPFO).
Under the EPF scheme, an employee has to pay a certain percentage from his pay and an equal amount is contributed by the employer. The employee gets a lump sum amount (which includes his own and employer’s contributions) with interest upon retirement or two months after switching jobs.
How to link account
To get UAN (Universal Account Number), a unique identification number for those contributing towards EPF, you need to either check monthly salary slip or contact human resource department. UAN is a 12-digit number issued by your employer and can be different for different companies. Ensure your UAN is activated and linked with bank account, PAN, mobile number, and Aadhaar. Then register on the EPFO website and get a password.
5 ways to check Provident Fund balance
Check balance on EPFO portal
The easiest and most common way to check your EPF balance is the EPFO website. After logging in on the EPFO website (www.epfindia.gov.in) using UAN number and password, click on ‘For Employees’ option and select ‘Our Services’ before clicking on ‘Member Passbook’ option. Enter your UAN and password details on the new page, and your provident fund details will be reflected. You can even save a PDF copy of the EPF details.
UMANG mobile app
UMANG (Unified Mobile Application for New-age Governance) provides a single platform to access pan India e-gov services, including EPF details. To do so, you have to click on UMANG app on the EPFO website and it will direct you to the mobile app page (umang.gov.in). Click on ‘services’ section and go to employment and skills option, and submit all details on the mobile app. Once all the details like mobile number, Aadhaar, etc, are filled, you can check EPF balance, claim it and even track the claim processing.
You can check the provident fund balance on the government’s e-Seva mobile app. The app service is only available for Android OS users. Go to Play Store on your mobile and download the m-Seva mobile app. After you open the app, click on ‘members’ and enter details mobile number, employee number, UAN, etc, to activate your UAN. Once these details are filled, log in using UAN and password, and click on passbook to view your EPF balance.
Type EPFOHO UAN ENG and send an SMS from your mobile number to 7738299899, and you will receive a message from the EPFO, displaying provident fund details. You can select any of the 10 languages, including English, Hindi, Gujarati, Marathi, Kannada, Punjabi, Tamil, Malayalam, Bengali, and Telugu. You need to use first three words of the language in which you want to see PF details (eg. type EPFOHO UAN HIN for Hindi) and send it to 7738299899. However, ensure your UAN is connected before you send the SMS.
Give a missed call on the number 011-22901406 from your registered mobile number, and you can get details about the balance PF. Before this, make sure UAN number is activated and linked with Aadhaar, mobile number, bank account, and PAN number, etc.
When can EPF be withdrawn
One may choose to withdraw EPF completely or partially. EPF can be completely withdrawn under any of the following circumstances:
A When an individual retires from employment
B When an individual remains unemployed for a period of 2 months or more. Here, it needs a mention that the fact that the individual is unemployed for more than 2 months has to be certified by a gazetted officer.
Further, complete withdrawal of EPF while switching over from one job to another without remaining unemployed for 2 months or more (i.e. during the interim period between changing jobs), will be against the PF rules and regulations and therefore illegal.
Procedure for EPF withdrawal
Broadly, withdrawal of EPF can be done either by:
For this, one can download the new composite claim (Aadhar)/ composite claim form (Non-Aadhar) EPF application here.
The new composite claim form (Aadhar) can be filled and submitted to the respective jurisdictional EPFO office without the attestation of the employer whereas, the new composite claim form (Non-aadhaar) shall be filled and submitted with the attestation of the employer to the respective jurisdictional EPFO office.
One may also note, that in case of partial withdrawal of EPF amount by an employee for various circumstances as discussed in the above table, very recently, the requirement to furnish various certificates has been done away with and the option of self-certification has been introduced for the EPF subscribers.
Interestingly, the EPFO has very recently come up with the online facility of withdrawal which has rendered the entire process easier and less time-consuming.
Prerequisite: To apply for withdrawal of EPF online through EPF Portal, make sure that the following conditions are met:
If the above conditions are met, then the requirement of an attestation of the previous employer to carry out the process of withdrawal can be done away with.
Voluntary Provident Fund (VPF)
The term ‘voluntary’ signifies willingly or doing something when guided by their own free will. The concept of Voluntary Provident Fund (VPF) draws on this, wherein the subscriber willingly contributes up-to 100% of their basic salary and dearness allowance into their respective Employee Provident Fund (EPF), instead of the usual 12%. The reservoir for such funds is the concerned employee’s EPF account, meaning, any activity concerning the employee’s VPF will impact the EPF portfolio too, and vice versa. For the financial year 2014-15, the VPF account doles out an interest rate of 8.75% on the accumulated funds.
Benefits of Investing in VPF
Let’s understand why investing in VPF is such a good tax saving investment option.
The Provident Fund Schemes are considered to be a debt oriented investment option and hence, it bears a fixed rate of interest, i.e. the returns are guaranteed.
Also, the funds are managed by the Government of India which scales down the risk of default in repayment to zero.
No mandatory contribution
The saving towards the VPF is not mandatory and the employee can determine his/her contribution towards such scheme. On the other hand, the contribution can also go up to a maximum of 100% of the employee’s salary (Basic + DA).
Competitive rate of interest
The rate of interest is high as compared to the other debt oriented investment options.
It has always been easy to register for VPF just by intimating your employer in a basic KYC form with the amount of deduction for VPF from salary and your EPF account can then serve as your new VPF account.
Contributing to VPF is a long-term investment scheme which qualifies it to be a good retirement saving plan and a potential pension fund.
The investment in VPF doesn’t get affected with the change in the employer as every employee is assigned a UAN (Unique Account Number) liked with the EPF Account by the government.
The VPF scheme comes with an option to avail loan for various purposes such as child’s education, child’s marriage, home loan repayment, etc.
Investment planning should always be done at the beginning of the FY to effectively achieve your savings goals. If you need any assistance in planning your taxes and e-filing your tax returns, the tax experts at H&R Block will be happy to help you.
Eligibility criteria for VPF
The voluntary provident fund scheme is an extension of the Employee Provident Fund (EPF) wherein the applicants can invest above the 12% contribution factor that applies to their traditional EPF accounts. The voluntary PF option applies exclusively to salaried individuals who receive their monthly pay through a designated salary account. People working in the unorganized sectors including non-salaried employees can open a PPF (Public Provident Fund) account at a local bank or post office.
Documents required for opening VPF Account
As mentioned earlier, the VPF account is the subset of the Employee Provident Fund (EPF) account and can be applied for by simply forwarding a request to the concerned company’s payroll/finance/HR team. The application form is a basic collection of employee information that directs the concerned payroll team to deduct a specified percentage of monies from the employee’s basic monthly salary as VPF contribution.
In terms of the bigger picture, the employer must register with the Employees’ Provident Fund Organization of India to be eligible to offer the EPF facility to its employees and consequently, the VPF option. For registration, the company must produce the following documents-
Calculation of VPF
When indulging in any long term savings/investment plan, the curiosity with regards to the sheer quantum of the final monetary output, and how to actually get there, is always a strong motivation in the back of a resourceful investor’s mind. Simple online tools such as the Voluntary Provident Fund Calculator help make such calculations easier; allowing said investor the basic knowledge of how much money must be periodically invested to attain the planned target payout. The standard VPF calculator utilizes the following input points to flesh out your voluntary PF payment strategy-
The fund allows partial withdrawals as loans with also the possibility of complete withdrawals. If the withdrawal happens before the 5-year minimum tenure, then tax will be applicable on the accumulated maturity amount. Once the employee resigns or retires from the employment the final maturity amount is paid to him. At the time of the untimely death of the account holder, the nominee can get the possession of the accumulated fund in the VPF account.
The VPF fund is mainly popular as the accumulated money can be withdrawn at any given time. In case of an unforeseen financial emergency, one can always fall back to his VPF account. The account can be broken for many reasons which include:
VPF withdrawal process & withdrawal Forms
Investments under the Voluntary Provident Fund scheme are quite popular, and one of the biggest reasons for this is the fact that the money accumulated in the voluntary pf account can be withdrawn at any time. Yes, there are certain conditions involved, yet, this accumulation of funds can be called to immediate action in case of an unforeseen and pressing financial contingency. A depositor can ‘break’ his/her VPF account for a fixed number of reasons, including-
Kindly note that terminating your voluntary PF account before said account has completed 5 years of existence will lead to tax deductions on the accumulated funds.
In order to withdraw the funds accumulated in his/her VPF account, the applicant must raise a request in #Form-31# through his/her employer. Form-31 (Application for Advance from the EPF Fund) can be downloaded from the Employees’ Provident Fund Organization of India website. The document includes details about the employee, including full postal address, EPF account number, bank account details where the money will be credited, etc. The document must be properly attested by the concerned employer.