Saving is important for financial stability and security, especially when planning for the future. Regular savings create a financial cushion to weather emergencies and achieve long-term goals, such as buying a home, financing education, or enjoying a comfortable retirement. You'll ensure peace of mind tomorrow, avoid unnecessary debt, and prepare for unexpected situations by setting aside money today.
Investing in Provident Funds (PF) is a great way to save for the future and secure your retirement. Provident funds are government-sponsored schemes that provide guaranteed income with the added benefit of tax advantages in certain circumstances.
FPs often collect contributions directly from their salary, allowing for a disciplined and sustainable approach to savings. These small donations build a substantial retirement fund over time. PFs are relatively low-risk investments with guaranteed returns that are suitable for conservative investors seeking financial stability after retirement.
Saving through provident funds not only helps build substantial retirement funds but also ensures long-term financial security and allows you to live a worry-free life.
Generally, there are currently three types of PF in India: General Provident Fund (GPF), Public Provident Fund (PPF) and Employees' Provident Fund (EPF).
What is GPF and how is it different from other savings plans?
GPF is a special pension savings plan for Indian government employees. It allows employees to contribute a portion of their monthly salary and earn interest on the funds raised. The interest rate is determined by the government and reviewed periodically. One of the main advantages of the GPF is its tax-free nature, since contributions, interest earned and withdrawals are exempt from taxes.
Employees must contribute a certain percentage of their salary. They may voluntarily increase this contribution up to their full salary. Employees can withdraw from GPF after a certain number of years of service or for specific purposes such as education, marriage, etc. Total withdrawal is allowed in case of pension or retirement.
One of the biggest advantages of the EPF is that the GPF contributions, interest earned and the final withdrawal amount are exempt from tax (under the EEA – Exempt, Exempt, Exempt category).
Compared to other savings plans in India, GPF has unique features. While the PPF and EPF are open to a broad section of the population, they differ in terms of lock-in periods and contribution structures.
While PPF is open to everyone, it provides reliable, government-backed savings options. With a 15-year lock-in period and tax benefits, it allowed investors to contribute voluntarily, providing a secure long-term investment.
Contributions to the PPF are voluntary, with an annual minimum of Rs. 500 and a maximum of Rs. 1.5 lakh. Interest rates are similar to GPF but set by the government and subject to quarterly review. On the tax front, it has EEA status as GPF.
Employees of establishments with more than 20 workers, on the other hand, must contribute to the EPF. EPF is created for salaried workers and provides tax-free interest and contributions. The Employees' Provident Fund Organization (EPFO) fixes the interest rates annually. Compared to PPF, it has a shorter lock-in period and allows partial withdrawal in case of emergency.
The PPF is ideal for those who want flexibility, while the EPF is structured for salaried individuals with employer contributions, making both schemes valuable in different ways.
In conclusion, GPF stands out for its guaranteed returns, tax benefits and withdrawal flexibility, making it a safe option for government employees.
Rakesh Goyal is the director of Probus
