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Benefits of Employees Provident Fund

Employees Provident Fund (EPF) is a very important retirement planning and long term savings tool for salaried employees. Any firm having over 20 employees has to register with the Employee Provident Fund Organization. One of the major EPF benefits is the tax-free compounded interest accumulated and the maturity amount. Another advantage of provident fund is that if it is continued for a long time, it builds up a substantial retirement amount. Another major EPF benefit is that an equal amount of up to 12% is contributed by the employer in to the fund.

Some of the other advantages of provident fund are

  • Insurance Benefit – As per the Employee Deposit Linked Insurance Scheme, all companies where group insurance is not available, the employer has to contribute 5% of the employees’ monthly basic pay towards premium for life basic cover. For some employees, this may not amount to much, but for others it is a good amount to help their family survive.   
  • Special Occasion Benefit – One of the significant EPF benefits is that on special occasions such as buying a house, medical expenses for you, your spouse, children or dependent parents, for specific goals such as marriage, education or other similar high expense items, one can withdraw funds from the EPF benefits fund. But, there are several terms and conditions for withdrawal that must be met.

Since this fund is backed by government, another point of advantage is that it is the safest investment one can make. The principal as well as the interest are guaranteed by the government.

Up to a maximum amount of Rs. 1 lakh, the contributions made in to this fund are eligible for a tax benefit. Also, if contributions have been made for a minimum period of five years, then the proceeds received at maturity are also tax free.

Another EPF benefit is that the interest rates on this fund are also fixed every year. Meaning they fluctuate with the market rate. So, if the economy is doing well then the rate of interest also increases.

If an employee changes jobs, then also the EPF benefits continue. The provident fund can be transferred to the new organization and all the benefits and contributions continue in the same way.

It cannot be stressed enough that the main advantage of a provident fund is the power of compounding interest which means that the interest earned is added to the investment to earn more interest.

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