Employee Provident Fund | What Is EPF & What Are Its Benefits?

Employee Provident Fund

Pension schemes help a person in their retirement life to still have a steady income source and remain independent. But most pension schemes are only available for government employees or employees with high salaries. So, if a person who has a limited income source from working at an organization has to depend on other savings and investment schemes for a pension fund.

One such method of obtaining a dependable pension is through EPF. Continue reading if you want to know more about what is EPF, its working, its benefits, EPF contributions, and its positive impacts on an individual’s financial future.

What Is EPF (Employee Provident Fund)?

Employee Provident Fund or EPF is a government initiative in India through which private employees can get a pension. These are solely meant for private employees of organizations with more than 20 employees. If you don’t yet have an EPF account, you can opt out of it. But once you register yourself in an EPF account, you have to compulsorily contribute as long as you have employment in an eligible organization.

As having employment is a mandatory criterion for EPF registration, people without such fixed-income jobs can opt for PPF. People’s Provident Fund is open to all people, employed, self-employed, unemployed, freelancers, and even students.

Working Of An EPF Account

In EPF, your employer deducts a percentage of your basic salary, which is usually 12%, and puts it into your EPF account. They also contribute an equal amount on your behalf into the account. So the EPF account receives contributions of your 12% plus their 12% of your basic salary. So you get double the amount of your deducted salary in the EPF account.

Now over the years, this accumulated money grows with annual interest. Currently, the annual interest rate of EPF is 8.1%. This money from your and your employer’s contributions keeps on growing. And you can use this money when you retire or whenever you require money for an emergency.

Benefits Of Having EPF

After understanding what is EPF, you must also know its benefits. Having an EPF will benefit you in several situations that require money. Given below are some major benefits you get from your EPF contributions.

High Interest Rate

The current interest rate of EPF is 8.1% which is much higher than any other savings or investment scheme. With the help of such a high interest rate, you can rapidly grow your investment over the years.

Best Investment Scheme

In EPF, the employer deducts about 12% of your basic salary. But they also contribute that same amount at their own expense into your EPF account. So you get double the investment in the instant your account receives the money. This means you get an instant 100% return by investing in EPF. This benefit of two for one makes EPF the best investment scheme.

Partial Withdrawal

EPF accounts also allow partial withdrawal of up to 75% in case you are currently unemployed for more than two months. Such partial withdrawal makes it easier for people who don’t have any other backup funds to rely on and have huge sums in their EPF accounts.

Employee Provident Fund

Loan

You can also take a loan from the EPF account when you are currently employed, and some financial emergency occurs. For that, you have to submit a few forms and describe your requirement, and based on that, the authorities will approve your loan application.

Financial Protection

Through EPF contributions, you can gift yourself financial protection. The liquidity of funds through partial withdrawal and loans makes it easier to get funds immediately. And the high returns in the future make your retirement life financially secure. So you get financial protection from all kinds of expenses in the present and in the future.

Positive Impacts

By contributing to EPF, you can raise a lot of money as compared to any other investment scheme. After all, what is EPF, if not a safety net, to grow your funds. So, you can see several positive impacts on an individual’s life. An investor can only visualize the major positive impact of EPF in their retirement life. The steady monthly income or lump sum withdrawal from the EPF account helps them become self-reliant for their expenses. So they don’t have to turn to others for expected expenses of the household and the unexpected expenses related to medical emergencies.

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