A Provident Fund (PF) is an investment scheme which is provided to an employee who is working in an organisation of more than 20 employees. The contribution of Provident Fund is made by both the employer and employee as per law. On retirement or on leaving an organisation the employee can withdraw their funds or transfer their funds to a new Provident Fund account associated with the new organisation. Provident Funds are considered a good investment option when long-term financial planning is concerned.
Types of Provident Fund
There are four types of Provident Funds which are associated with an employee’s income.
1. Statutory Provident Fund (SPF) – This is a type of Provident Fund which is provided in government, semi-government bodies, railways and educational institutions. The contributions made by the employer are eligible for tax exemptions. The contributions made by the employee are subject to tax deductions under section-80C.
2. Recognised Provident Fund (RPF)-This is a type of Provident Fund which is provided in any business unit which 20 or more employees are working respectively. Employer’s contribution exceeding the 12% salary will be taxable under the law. The amount invested by the employee is subject to tax deduction under section-80C (up to Rs 1.5 Lakh every year).
3. Unrecognised Provident Fund (UPF)-This is a type of Provident Fund which is provided in all the establishments not recognised by the Commissioner of Income Tax. The contribution by the employer, in this case, is not subject to tax and is considered tax-free in the contributing year. The employee’s contribution is eligible for tax deductions under section-80C.
4. Public Provident Fund (PPF)-This is a type of Provident Fund which is provided irrespective of employment status. Therefore this PF can be taken by both salaried people as well as self-employed individuals. Public Provident Funds are eligible for tax benefits under section-80C.
Benefits of Provident Fund
● It is an excellent tool for retirement and savings due to the long-term returns offered with the 15 years lock-in period.
● A Provident Fund can be used as an emergency reserve for future contingencies such as medical emergency, educational expenses, marriage expenses etc.
● The interest which is provided under the Provident Fund scheme is eligible for income tax benefits under Section-80C.
● Aadhar linking has made it easier to transfer PF funds when moving from one job to another. This has become more simple and hassle-free due to the emergence of Form-11.
● Provident Fund is also eligible for Insurance benefits under the Employee’s Deposit Linked Insurance Scheme (EDLIS).
● All the investments, interest and withdrawals under Provident Funds are eligible for exemption under Exempt-Exempt-Exempt (EEE) category.
Why should one extend their Provident Fund after 15 Years?
● Extending the tenor of Provident Funds yields higher returns. While the 15-year lock-in period under the Provident Fund is known for offering low returns to individuals.
● The individual gets more interest amount in the 5 year tenor period. For example- If your income after the 15 years lock-in period was Rs 30 Lakhs. The extended tenor has the ability to give you returns up to Rs 20 Lakhs.
It is favourable to extend the Provident Fund after the initial 15 years lock-in period. However, individuals are requested to do proper financial research on the PFs before investing their money. Individuals should ask their financial planners for the same.
Benefits Provided under Bajaj Finance
It is a viable option to invest the earnings of Provident Funds (after the extended tenor or after the 15-year lock-in period) in Fixed Deposits. This is because FDs allow you to choose the tenor as well as offers more flexibility as compared to Provident Funds. Bajaj Finance provides Fixed Deposit (FD) scheme for individuals who wish to grow their investments in a safe avenue. The features provided under this scheme are:
● FD interest rates are offered at 8.75% – 9.10% under this scheme.
● FD calculator is provided under this scheme to calculate the maturity amount as well as the FD interest rates.
● Flexible tenors are provided from 12-60 months under this scheme.
● A special tenor FD is provided for 15 months under this scheme. This tenor provides 0.25% more interest as compared to the 12-month tenor FD scheme.
● Senior citizens under this scheme get 0.35% more interest as compared to the regular Fixed Deposit under this scheme.