A provident fund functions as a form of social safety net. It is a compulsory government managed retirement savings scheme, into which workers must contribute a portion of their salaries and employers must contribute on behalf of their workers. The money in the fund is then paid out to retirees, or in some cases to the disabled who cannot work.
Now, India's provident fund body, Employees Provident Fund Organisation (EPFO) lowered its interest rates on deposits from 8.8% to 8.65% in this financial year. Even too PF remains as the safest and secured investment option for the common workers.
Here are 11 reasons why you should have a PF account:
1. You can invest what you like
One of the best features to invest in PF is the flexibility. Members can deposit Rs 500 to Rs 1.5 lakh in their PF account in a given financial year. If you want, you can deposit the whole amount at once. Or else you can deposit it as in twelve installments.
2. Free for all citizens
All citizens of India can open a PF account. Even if you are self-employed, you can invest in PF. You can even open an account on behalf of a minor. NRIs cannot open a PF account. If a person opens an account as a Indian resident and then got a job abroad and become an NRI, the account can be continued.
3. Fund on resigning
On resignation, the member can settle the provident fund account. That is., the member gets his PF contribution, Employer Contribution, and Interest.
4. In times of a crisis, it is easy to get a loan
Do you need security for a loan? You can use your PF account. Loans against PF account can be availed before the seventh year. Most companies offer customers a loan against PF as a security at reasonable rates of interest. If your PF balance is higher, the more is your eligibility for such loans.
5. Long-Term Investment
PF account can be considered as a long-term investment option. There is a lock-in period of 15 years that ensures long-term investment in PF. A long lock-in-period makes PF a good saving tool. After 15 years, you can extend the account in blocks of five years.
6. Interest Accumulation
The rate of interest earned on a PF account is fixed every year during the months of March or April by the Government. The PF currently for the financial year 2016-2017 carries an interest rate of 8.65 per cent. This interest rate is guaranteed and risk-free. Although the rate may vary, you will get a fixed return every year. The interest is credited to your PF account on 31st March every year.
7. Rescue at emergency
PF also offers other benefits like using funds for equipment purchase in case of differently-abled and natural calamity damages, etc. which an employee can use at the time of need.
8. Can nominate you family member
A PF member also has an option to nominate family members to receive funds after his demise and should be aware that withdrawing funds after job change is legal only when you are jobless for at least two months.
9. Premature Withdrawal
When the PF account matures in 15 years, you can withdraw the entire amount. If you are in need of money before this time period, then you can withdraw partial amounts after the seventh year. This is subject to certain conditions and limits. Member can withdraw from this accumulations to cater to financial exigencies in life - No need to refund unless misused.
10. Tax Benefits
PF investments fall under the exemption of tax basket. Contributions account holder make towards your provident fund gets you a tax benefit under section 80C, up to a maximum limit of Rs 1,00,000. Also, the maturity proceeds are tax-free, if contributions to the fund have been for more than five years.
11. It is mobile
PF account is very mobile. If you are moving to a new city or getting a new job, you can shift your PF account to the nearest branch. Account holder does not have to close the old one and open another in a new city.