To ensure that you do not have to spend the golden years of your life being financially dependent on others, it’s essential that you start planning for your retirement from a young age. With two major types of retirement funds available in India i.e. Provident Fund and Pension Fund, choosing the right one for yourself can be a bit challenging.

What is a Provident Fund?

A Provident Fund is a government-sponsored retirement scheme. Both the employer and the employee are required to contribute to the provident fund account with an aim to create a retirement corpus for the employee. The set of rules that govern the Provident Fund such as minimum age, withdrawal amount, and maximum lock-in period etc. are set by the government.

In India, there are two prominent provident funds available for the beneficiaries – Employee Provident Fund (EPF) and Public Provident Fund (PPF). EPF is provided to the private and public sector employees where both employer as well as employees make contributions. Whereas, anyone can open a PPF account and invest in it every year for at least 15 years to build a corpus.

What is a Pension Fund?

A pension fund is another retirement planning scheme in which both employers as well as employees make contributions to a pool of funds set aside for providing pension to the employees. However, in most cases, it’s the responsibility of the employer to provide pension funds to their employees.

The pension fund provided by the Government of India to its employees is known as National Pension Scheme (NPS). An employee is required to contribute 10% of his/her basic pay plus dearness allowance towards the NPS and equal amount is contributed by the government.

Differences between Provident Fund and Pension Fund

Parameter Pension Fund Provident Fund
Eligibility Both NRIs as well as Indian citizens can invest in it. Only Indian citizens can avail its benefits.
Interest Rate 10 to 12% depending upon the market Fixed 8.60 % which can be revised by the RBI
Minimum Age 18 years No minimum age
Minimum Yearly Contribution Rs. 6,000 Rs. 500
Taxation Contributions are tax-exempted Tax-free


The Final Word

The two types of retirement schemes differ from each other on the basis of certain parameters such as eligibility, returns, and contributions that one can make. While pension funds are offered by default to the government employees, it’s up to the investor to review the scheme and invest his/her hard-earned money into any scheme.

Learn more about your Pension Plans here.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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