What Are The Different Types Of Provident Fund Accounts?
Provident fund accounts are of different types & help people save money for their post-retirement life. Read on to know more!
Provident funds come in a variety of forms that people can utilise for investments and regular savings. The taxability and functionality of these funds operate differently from one another. Additionally, they are also governed by different sets of laws. But all in all, provident funds are designed to give salaried workers the chance to build a retirement corpus through monthly deposits.
The primary goal of provident fund programs is to guarantee employees' financial security once they leave their service. Employees who are enrolled in PF plans contribute a portion of their monthly salary. The overall amount becomes a retirement corpus, and some of the total savings can be used as a pension.
There are three different types of provident fund accounts – Employees' Provident Fund (EPF), Public Provident Fund (PPF), and General Provident Fund (GPF).
What Is Employees Provident Fund (EPF)?
EPF is a provident fund program run by the Employees Provident Organisation (EPFO), the Central Government's retirement fund organisation, for salaried employees who are not government employees. According to the Employees' Provident Fund and Miscellaneous Provisions Act of 1952, any firm or a corporate entity with more than 20 employees is required to offer retirement benefits to its employees.
The current EPFO guidelines provide that each month, an employee must contribute up to a maximum of 12% of their base income and dearness allowance, and their employer must match that amount (12%). After retiring, employees can completely close their EPF accounts and transfer them when changing jobs. An EPF account may be partially withdrawn for a variety of purposes, including loan repayment, home purchase or construction, and family member medical care.
What Is Public Provident Fund (PPF)?
An Indian resident who is employed or unemployed can open a PPF account. PPF is not a required provident fund program. A person may deposit up to 1,50,000 in their PPF account in one financial year, with a minimum deposit of 500. For those who want to lock in their contributions for an extended length of time, PPF can be used as a savings plan. Every three months, the Indian government adjusts the PPF interest rate.
PPF accounts mature after 15 years, whereas EPF accounts can be extended for an additional five years at a time. Starting with the seventh fiscal year after the PPF account is opened, partial withdrawals are permitted annually. Every quarter, the Central government sets the interest rate for PPF. The PPF interest rate as of now is 7.1%.
What Is General Provident Fund (GPF)?
Only government employees are eligible for the General Provident Fund (GPF) scheme. All temporary government employees who have worked consistently for a year, all permanent workers, and all reemployed pensioners (except those who qualify for admission to the contributory provident fund) are entitled to register a GPF account.
A government employee is required to routinely donate a portion of their pay till the time they are employed. Once a person retires, the accumulated corpus can be withdrawn. The remaining balance in a GPF account is additionally qualified to receive fixed-rate interest. The Department of Pension and Pensioners' Welfare administers the GPF program on behalf of the Ministry of Personnel, Public Grievances, and Pensions.
Now that you know the different types of provident fund accounts, choose wisely and invest safely.
Disclaimer: The interest rate mentioned in this article are recorded at the time of writing and are subject to change.