A Provident Fund (PF) or Employee Provident Fund (EPF) is a social security scheme by which the Government encourages long-term savings for anyone who earns more than Rs.15,000 in a month.
When you start your first job, you are registered for this scheme by your employer. All those having EPF accounts after the year 2016 have been assigned a lifetime usable Universal Account Number (UAN) for their EPF account.
An Employees’ Provident Fund is made of three main contributions:
- Employee’s contribution
- Employer’s contribution
- Interest which is earned on both
How does PF work?
Here is how the EPF scheme works:
- Each employee is required as per the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, to contribute 12% of their basic salary in addition to the dearness allowance. Your employer is required to contribute the same amount.
The employer’s 12% contribution is divided into two separate schemes. The first is the Employees’ Provident Fund Scheme, where 3.67% of the original 12% contribution is paid, and the second is the Employees’ Pension Scheme, where leftover 8.33% is paid.
- The maximum contribution which can be made by an employer is Rs.1,250 (i.e. 8.33% of the Rs.15, 000).
- If there is any excess amount, the amount is put into the Employees’ Pension Scheme.
- An interest of 8.75% is paid on the Employees’ Provident Fund Scheme Account while the pension scheme is interest-free.
- This amount can either be withdrawn once you retire from employment or when your employment ends with the employer.
- If the amount is withdrawn short of five years of continuous employment, a 10% tax is charged on the amount.
How can you check your EPF balance?
There are four ways to check your EPF balance amount:
Log on to www.epfindia.gov.in, and from the ‘Our Services’ menu, pick the option that says ‘For Employees’. Thereafter, click on ‘Member Passbook’. This will require a log-in with the UAN number and a password.
An SMS sent to 7738299899 containing the message ‘EPFO UAN ENG’ will show you your balance in English. This service is available in a host of Indian languages.
Via Missed Call:
In the case your mobile phone number is registered with your UAN (PF account number), then leaving a missed call at this number shows you your balance: 011-22901406. Make sure to link your Aadhar and PAN cards to your bank account.
This application is a provision of the Government of India, launched in 2017. Simply log-in, and enjoy!
How can you multiply your PF money?
Upon retirement, a PF will give you a large amount of your savings. This should be invested in a scheme that gives you growth, financial security, as well as stability. The aim is to use your EPF savings to create an income source for the future.
One way to invest is to purchase shares, mutual funds or other equity. These can be liquidated at any time, and have an accelerated growth return with the passage of time. Investment in real estate can also give maximum returns if invested in the right place, at the right time. However, these methods are known as high-risk smart investments and have a few disadvantages such as:
- No barriers against inflation
- Investment affected by swings in market trends
- Limited control over the amount invested (in terms of premature withdrawal)
An alternative to combat such losses is investing large sums of money into Fixed Deposits. Non-banking financial institutions such as Bajaj Finance furnish larger rates of interest, ranging from 8.60% to 8.95% on each investment. Senior citizens are given an additional 0.35% over and above the regular FD rates. Additional advantages are:
- Assured returns on the principal amount invested
- Higher rate of interest
- Tenor flexibility from 12 to 60 months
- Frequency of interest payout can be decided
- No effect of market fluctuation
- Reasonable minimum investment (Rs.25, 000)