Output type of incremental rotary encoder
Reading your schematic:


I see the A and B encoder phases which are standard for incremental encoder. - The "index" signal usually pulses once per revolution and may or may not be useful in your application.
The inputs have 4k7 pull-up resistors and this suggests it is designed for open-collector encoder. Since the pull-ups are connected to +5 V they will also support a 5 V TTL output encoder.
There are RC circuits to ground on your inputs. These seem to be performing a filter function and since the resistance is relatively high they won't affect the pull-ups significantly.


Usually encoders are used for fine position control and VSD/VFD induction drive doesn't do this very will. A more typical application is to fit a tachometer or encoder feedback to monitor motor speed. In this case either the A or B encoder output would suffice. In your case, however, the drive seems to be designed to accept A-B-Z type of encoder so you should be fine.