A provident fund is a compulsory, government-managed retirement savings scheme used in Singapore, India, and other developing countries. In some ways, these funds resemble a hybrid of the 401(k) plans and Social Security used in the U.S. They also share some traits with employer-provided pension funds.
Workers give a portion of their salaries to the provident fund and employers must contribute on behalf of their employees. The money in the fund is then held and managed by the government, and eventually withdrawn by retirees or, in certain countries, their surviving families. In some cases, the fund also pays out to the disabled who cannot work.
1) Loan against PF: A PF account holder can take a loan against their PF balance and the PF loan interest rate levied is only 1 percent if there is a financial emergency. Within 36 months of loan disbursal, the loan has to be repaid.
2) Free insurance: Under EDLI scheme, in case of death during the service period, a PF account holder by default becomes eligible for free insurance up to Rs 7 lakh. Previously, the death cover was Rs 6 lakh. Under the EDLI scheme, the PF account holder need not pay any insurance premium for the death cover.
3) Home loan and hole loan repayment: One can withdraw up to 90 percent of the PF balance for buying a new home or constructing a home, as per EPFO rules. So, PF account can be used for home loan repayment and through PF balance, one can buy land as well.
4) Partial withdrawal during an emergency: Subject to some terms and conditions, in case of medical or financial emergency, EPFO allows partial withdrawal.
5) Pension provision: A PF account holder is eligible for pension after 58 years as well. However, to become eligible for the pension, there has to be a minimum of 15 years of regular monthly PF contribution in one's PF account. The pension benefit comes from the employer's contribution as 8.33 percent of its contribution (out of 12 percent) goes to the EPS account of the PF account holder.
If you are a salaried employee with a Basic + Dearness Allowance less than If Rs.15,000 per month, it is mandatory for you to be opened an EPF account by your employer. Organizations with 20 or more employees are required by law to register for the EPF scheme, while those with fewer than 20 employees can also register voluntarily. If you are drawing a salary higher than Rs. 15,000 per month, you are termed a non-eligible employee and it is not mandatory for you to become a member of the EPF, although you can still register with the consent of your employer and approval from the Assistant PF Commissioner.
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