Investment in Provident Fund – PF for Retirement – Good or Bad
Recognized PF Trust
Unrecognized PF Trust
What are the benefits of PF
This gives you an opportunity to accumulate your corpus for retirement with hedge to inflation. It helps you in maintaining the purchasing power of your money in 25 to 35 years of your life.
This product is of long term in nature and you can invest up to 12% of your basic salary, if your employer allows you to do so. This gives you return of 8.5% in the fy 2013 – 2014.
The best part in this is – you get similar contribution from your employer, which enables you to make 100% return in total on your contribution. Private sector employees who get package in CTC form are devoid of this as everything is calculated in cost to company.
Is there any Tax benefit?
Investment up to 1 lac per annum qualifies for the deduction of income. The maturity proceeds or partial withdrawals from the scheme are Tax free in the hands of individuals, excluding people who contribute in unrecognized provident fund.
So individuals should enquire about the status of their PF trust..
PF withdrawal before 5 years of employment is taxable.
How much should be contributed?
You need to contribute the mandatory deduction in PF. Only certain Government and other employees have the option to invest more in Provident Fund. Like other products you need to plan carefully as it gives you hedge against inflation only. If you don’t find any instrument to generate returns more than inflation, you should invest in this.
Investment without knowing your need you can have short corpus or you may have very high surplus corpus by unnecessarily sacrificing your other needs. This is good for people who are not disciplined enough to invest regularly or who cannot avoid premature withdrawals.
Buy paying Rs. 100000 a year in Provident Fund can you think of getting pension of Rs. 25000(in today’s value) per month at retirement? The answer is ‘NO’.To carry out all your responsibilities you need to plan your life.