The stock market fell over 2% today .

Ravi , a middle class salaried employee was stressed while checking his portfolio in the phone . Over the past 10 days , Sensex has been up for 5 days and down for the rest 5 days, so has his mood constantly juggling between euphoria and sadness . While he is hooked to the market swings , something else in the background is cushioning the impact in complete silence.

One year ago he signed up for additional 12% VPF deduction from his monthly salary which he had forgotten about . That VPF doesn’t care about stock market , tariffs or any other global events . It just keeps on compounding month after month until Ravi retires . This is the reason why VPF is good for middle class salaried employee

For most middle class Indians , they just wait for one stock to pick up and become a multi bagger setting them up for retirement . But in reality it is built by consistent and disciplined investment spanning decades . In its due course , VPF & EPF work silently and eventually becomes a pillar for a middle class man’s retirement corpus .

It has no glitter nor does it shimmer liker gold and stocks , no one talks about it on the dinner table .Yet , every year , it helps crores of middle class Indians to retire in peace .

Here’s why VPF is an underrated investment product ?

• Creates investing discipline

For a typical middle class salaried employee , VPF removes the urge to spend first and then invest with whatever money is left . Since VPF is automatically deducted from the monthly salary before it reaches your bank account , it creates an investing discipline . It follows the principle of “Pay your future self first” without giving in to unnecessary spending in the present.

💼 Monthly Salary
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💰 Automatic VPF Deduction
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🏦 Monthly Investment
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📈 Annual Compounding
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👴 Retirement Corpus

• Competitive government-backed interest rate

It acts as a competitive option to the middle class salaried employees to compound their investment corpus by providing 8.25% interest , which is much better than 7.1% interest provided by the PPF scheme . It is also very stable since it is not affected by market movement like NPS scheme . It is a great scheme for people who want safety yet good returns .

• Investment grows with your salary

Over here , Ravi gets a 10% hike after a year of service , but along with the salary increase , his VPF contribution also increased by 10% , this also increases his contribution towards the retirement corpus without requiring any additional effort . Instead of letting the increment disappear into lifestyle inflation , VPF also ensures a part of your salary helps in securing your future .

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• Designed for long-term retirement savings

Middle class salaried people don’t build wealth because they have easy access to their savings . One of the best feature of this scheme is that it follows EPF withdrawal rules , which means that you cannot withdraw money for leisure and impulsive expenses . Partial withdrawal is allowed only for medical emergencies , home purchases , education , hence encouraging long term investing and compounding for safe retirement .

• Tax benefits

Apart from good investments , a typical middle class salaried employee would also prefer tax breaks from their investment . VPF doesn’t disappoint , it offers tax benefits at the time of investment , accumulation and withdrawal making it one of the most tax-efficient investment scheme .

1)Section 80C deduction

VPF contribution is eligible for tax exemption under Section 80C , the overall annual limit to this exemption is 1.5 lakh (shared with EPF, PPF, ELSS, life insurance, etc.) .

2)Tax-efficient interest

Interest earned on the contribution made by the employee (VPF + EPF) up to 2.5 lakh per financial year will remain tax free under existing tax rules .

3)Tax-free withdrawal

After you complete at least 5 years of continuous service , you can withdraw the balance tax free, as per the conditions set by Income tax Act and EPF rules .

• No fund management fees

There are no brokerage fees or platform or fund management fees applicable to VPF contribution , there is no separate fund manager waiting to take a bite of your corpus . This allows more of your hard earned income to stay invested .

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• No investment risk / market volatility

Unlike mutual funds and stock market volatility , VPF is not impacted by daily market fluctuations . Your investment earns the interest declared by government each year, allowing your retirement corpus to grow steadily . The interest rate is determined from EPFOs investment earnings from government bonds , government securities and other debt products .

• Acts as a hedge against equity

VPF acts like a portfolio stabilizer with a low risk element and also offering better interest than your regular FD . Majority of middle class salaried people rely too much on equities to get quick money but on the downside when the market crashes by 10-15% , VPF continues to grow through regular contributions . Hence with the combination of VPF & equity , you can have a more resilient retirement portfolio .

Conclusion

In the end , your VPF is not going to make headlines nor it will give you thrill of watching your portfolio everyday . Ironically , this is its biggest strength . It basically creates wealth through thousands of regular small contributions over an entire career . Over here , you are not supposed to worry about timing it , you are not required to manually invest and it is even tax- efficient . In general , it provides peace of mind to the investor and also plays a part in building a resilient retirement corpus . This is why VPF is good for middle class salaried employee .