Earlier, ‘provident fund’ i.e. PF is the only option for the salaried class to save their hard-earned money and build their retirement corpus. When both employees and employers contributed together in this scheme, the contribution increases and a considerable corpus forms at the time of retirement.
It is perhaps the simplest way to save some amount for the life after retirement without much hassle and hence, the majority of people believe that PF is the safest retirement planning scheme.
The Employee Provident Fund Organization (EPFO) is then allotted a Universal Account Number i.e. UAN to the employee. The PF account and UAN are connected and valid till the employee’s life. In fact, employees can easily switch their PF accounts when they change their job.
Let’s know everything about provident fund step by step; take a look:
PF Full Form
The full form of PF is the Provident fund.
What is Provident Fund (PF)?
PF, also known as Provident Fund or Employee Provident Fund, is a government-managed retirement plan for salaried employees. Any company having more than 20 employees is entitled to PF.
An employee provident fund is a worthy approach to saving money for retirement. According to this scheme, an employee has to save a small amount of their salary every month to get good benefits during their retirement.
This scheme is managed by EPFO(Employee Provident fund organization) under the supervision of the Ministry of Labour and Employment, Government of India. It was launched in 1951.
Also Read: All You Need to Know about Labour Welfare Fund
How does the provident fund work and it is applicable to whom?
According to the PF Act, all companies with an employee base of more than 20 needed to register with the EPFO. The employer and the employee must contribute 12% of the basic salary to the PF account.
Then, the government invests all these funds in securities to generate an interest rate in the range of 8% to 13% per annum. In case of a job change, an employee can update the new organization with details of the PF account.
Also Read: How to claim PF Online? Step by Step Guide
EPF Interest Rate
This scheme requires the employee to contribute 12% of their basic salary and dearness allowance every month. Along with the employee, the employer is also required to contribute an equivalent amount to the employee’s account.
Eligibility criteria for PF
- A company with 20 or more employees is mandatorily required to be registered under the Employees Provident Fund.
- Every salaried employee with less than Rs 15,000 is required to register for an EFP account.
- Companies with less than 20 employees can voluntarily register for the EFP scheme.
- An employee can contribute towards EPF up to the age of 58.
EPF Benefits
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- Employees can save money in the long run.
- It helps employees during financial emergencies.
- Making small investments monthly helps save a huge amount over a long period of time.
Withdrawal of PF
The Provident fund EPF savings is a long-time investment made by the employer, the employee, and in some cases by the government. An employee at the time of retirement can withdraw the total amount he/she has invested over the years.
However, there are certain conditions that an employee has to follow to withdraw the money from the EPF scheme.
- An employee can withdraw the entire amount along with the interest once they reach retirement age.
- An employee is permitted to withdraw a partial amount before their retirement only in certain special cases like marriage, higher education, medical emergencies, etc., provided certain conditions are fulfilled.
Employees can keep check of their PF balance with the help of several Apps
How to calculate interest on a provident fund (PF)?
Currently (2019-20), the employee provident fund interest rate for 2019-2020 is 8.65%. The interest rate is calculated every month, but it is deposited in the PF account at the end of the financial year.
PF is a saving platform that helps the workforce of organizations to save a fraction of their monthly salaries that can be utilized upon retirement. Nowadays, many companies use online payroll software to perform accurate salary calculations, including the PF amount to avoid human errors and/or delays. Even if you don’t opt for PF, then your in-hand salary increases. But, spending less now could bring financial stability later.
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