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Employees Provident Fund

Commonly Provident Fund is referred to as Employee Provident Fund or EPF or PF. If you are a salaried employee in India, one of the often unnoticed investment which you may be doing every month is your contribution to Provident Fund, including your employer's contribution. As per the current provisions in India, any employer having 20 or more employees is required to register with Employees Provident Fund Scheme and contribute towards PF.

The key characteristics of PF are enumerated below:
  • An employee is required to contribute 12% of the basic salary towards the provident fund.

  • The employer also generally contributes an equal amount to employee's provident fund account.

  • Contribution over and above 12% of the basic salary can be contributed by the employee at their own discretion.
 
  • Currently, balances in PF account enjoy a handsome interest rate of 9.5% p.a. Such funds are not invested in Equity markets and hence have a low risk profile.

  • The scheme is managed by The Employees' Provident Fund Organisationand is one of the largest provident fund institutions in the world in terms of members and volume of financial transactions that it has been carrying on.

  • As the Provident fund is associated with an employer, if an employee changes their jobs, the new employer will open a new provident fund account for the employee. The employee can transfer their existing balances from previous employer's provident fund to the new provident fund account. We at Banyan suggest employees to consolidate the provident fund balances from all their prior employers to their current employer. This would prevent administrative hassles of maintaining history of provident fund investments in multiple provident fund accounts.

  • As per the current regulations, employees can encash their pension fund balances from their previous employers. However, this temptation should be avoided as such balances will go a long way in creating a fund which will be a source of post-retirement income.

  • As per the current tax laws, if you have worked for a continuous period of over 5 years, withdrawals from PF account are not taxed. Tenure from previous employers is included in the computation of the 5 years period.

  • If one needs urgent funds, banks generally provide loan against the balances of PF account.

Details on the Provident Fund scheme can be found at http://www.epfindia.gov.in
 
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