Retirement is a phase of life in which everyone wants to be free from financial insecurities. For this reason, fixed deposit and the provident fund can be the ideal way to save money for the future. While many public sector employees would be able to enjoy the benefits of pension after they retire, Provident Fund can be a great way of accumulating a retirement fund for the private sector employees. However, irrespective of whether the employee is working in the private sector or government sector, he/she can apply for Employee Provident Fund. One can understand the Provident Fund as a kind of fixed deposit with more benefits and perks. The money for the fund is sourced from the employee itself by deducting a certain amount every month, from their salary. In Employee Provident Fund, there are two contributors, one being the employee himself and the other being the employer who contributes the same percentage of the amount as the employee does. Over the years, one can build a large retirement fund through their contributions to the EPF.
Here are the basic eligibility criteria for individuals who want to apply for the Employee Provident Fund (EPF):
- The employee must have a service of 10 years or a minimum of 9 years and 6 months. The maximum service of an employee can be 33 years.
- For applying to Employees Provident Fund the organization or firm must have a minimum of 20 members. If the strength of the firm or organization falls below 20 members after applying for a provident fund it cannot be canceled and has to be continued.
If you have a service of more than 20 years then you are eligible for a clause which grants you 2 bonus years which you can add into your service period. For example, if the employee has a service of 21 years then he can enter the service period as 23 years.
How to Calculate EPF
According to a recent amendment in the Act, as of 14 September 2014, the maximum basic salary which is an addition of Dearness Allowance (DA) and your basic salary, is to be considered 15000 INR. This amount was 6500 INR, prior to the aforementioned amendment.
Here is How to Calculate EPF using the recent amendments in the policy:
A= Average basic pay
B= Service period
In the equation, A is Average Basic Pay which can be a maximum of Rs.15000 according to the amendments done on 14 September 2014. B in the equation is for the service period which can be considered a maximum of 33 years including the 2 year bonus.
Employer’s Contribution to EPF
The employer is bound to contribute an amount which will be equal to 10 to 12% of the employee basic salary. Female employees working in a private sector or government sector then have to pay only 8% of the basic salary, as a contribution to their EPF.
- Employee provident fund: 3.67%
- Employee pension fund: 8.33%
- Employee deposit link insurance scheme(EDLIS): 0.50%
- Administrative charges for employee provident fund: 1.10%
- Administrative charges for EDLIS: 0.01%
EDLIS (Employees Deposit Link Insurance Scheme)
It is a kind of insurance provided by various financial companies, that provides a particular amount of money to the beneficiary of the employee. The money fund is transferred to the beneficiary if the employee dies in between the service period. Any organization which is liable to or covered under the EPF (Employee Provisions Fund) and the Miscellaneous Provision Act, 1952 has to subscribe to this scheme. The organization has to provide all the employee’s with life insurance coverage, it is only that the benefits are decided according to the employee salary. There is no exclusion in the coverage provided to the employee under the EDLIS and is applicable globally which provides a cover all the time (24×7) to the employees. The employer can apply any other group life insurance scheme but the benefits should be equal to or much better than EDLIS.
In today’s time, a lot of attention is given to the employee’s welfare by the government or the employer. By the time you retire, there is a good chance that you would have accumulated a retirement corpus to spend for the rest of your life. Such funds can often be crucial during emergencies, and maximizing the corpus will surely be an asset to your financial portfolio. An effective way to do so is by investing some of the corpus into a Fixed Deposit account which guarantees returns and holds no risks, thus securing the amount for a brighter future. Many reputed NBFCs like Bajaj Finance, offer flexible tenors and higher interest rates for senior citizens, making it a lucrative investment option for the latter part of your life.