I am 45 and am feeling the burden of lower interest rates on fixed deposits and PF. Is it a good idea to opt for VPF (voluntary pension)? I don’t need the money for the next decade, so I am fine with it being in the PF for long.
Hareesh Rao, Bangalore
The Voluntary Provident Fund (VPF) is a version of the traditional provident fund saving scheme wherein the subscriber retains the control to periodically assign a specific amount to their provident fund, voluntarily, as part of their VPF contribution. Like the EPF, these too provide for tax savings and earn guaranteed returns. Under the VPF, there is no limit as is the case with the EPF on how much you could contribute. However, the VPF is an option only for salaried individuals who receive their monthly pay through a designated salary account.
Just the way interest rate on deposits is falling, the guaranteed interest rate on PF is also falling, if you observe the rates over the past five years. As you are not looking to need this money for a decade, you have time on your hand and you are not that old yet to stay away from equity investing. There are many tax saving investments you could consider and initiate a monthly contribution in them such as an SIP in an ELSS (equity linked saving scheme), such as Axis Long Term Equity or Franklin India Taxshield among others. If you are not part of the NPS, you could start investing in it and choose the fund option with 50 per cent exposure to equities. As you have a decade to invest, the exposure to equities will not only beat inflation, it will also help you save taxes. If equity is something that you do not wish to invest in, consider the debt option under NPS over the VPF for better results.
