A salaries employee wish to buy a flat costing Rs. 10 Lakhs therefore he would either opt for a house loan paying huge interest rates or one would go for advance/withdrawal from PF but that's a long long procedure.
Therefore rather than opting for the archaic EPFO (Employees Provident Fund Organisation). Instead of waiting aeons for his PF proceeds, one can withdraw money from his PF account in a couple of days.
That's just one of the many advantages of an exempted PF trust. We take a look at the other ways in which this kind of trust scores over the EPF that is supervised by the regional PF commissioners.
Why PF? When you join any provident fund it means that you automatically make regular, mandatory, tax-qualified, defined contributions that accumulate till you retire. You contribute 12 per cent of your basic pay, and your employer matches this amount.
"With no social security available, this instrument enables employees to build a corpus to see them through tough times between jobs -- as the amount can be partly withdrawn as a loan -- and finally after retirement."
Obviously, the PF is an important part of any financial plan. So, how you handle it will make a huge difference to your financial goals, particularly long-term goals.
There are three options to be part of a PF:
One is to save in an un-exempt fund like the EPF under the EPFO.
The second avenue is to invest in a company-run exempt fund recognised by the EPFO and which pays at least the same interest as the EPF.
The third is to put your money in a company-run excluded fund, which is not EPFO regulated, but is set up with approval from the resident income tax commissioner. This type of fund looks after all investments and fund management itself and is self-regulated.
If you work in an organisation that employs more than 20 people, the company falls under the PF Act and will have to be a part of a PF trust that is exempt or un-exempt to comply with the PF Act.
Apart from returns, there's also the matter of a contributor being able to access his savings in the fund, something the EPFO does not bother about. Getting them to sort out even minor service glitches could be a nightmare, and most employees prefer to deal with the more friendly and responsive company-run exempt trusts, where they seem to be heard. Are non-RPFC trusts better?
The biggest factor that keeps employers and employees outside the RPFC is the service levels they get from trust managers.
Though exempted funds have to match the EPF returns, they offer far superior service. They are better managed, and in some years have earned better returns than what the EPFO has declared. What do employees gain from being part of trusts that are not part of the EPFO?
You must understand that the purpose of setting up the EPFO is to protect employees' future by making them contribute today.
However, there are instances when a member needs to dig into his PF savings to meet certain financial obligations like medical treatment, marriage, housing loan or education. These can be refundable or non-refundable loans.
However, it invariably becomes a Herculean task for him to get his money out of the EPFO. It's time-consuming and often fruitless, which is not what one wants in an emergency. Company-run trusts, on the other hand, expedite such matters. After all, the money is there for the investor when he needs it. Why aren't more forming their own trusts?
The first reason is that in the past seven years, hardly any organisations has managed to get an exempted status. This has a lot to do with the dual role that the EPFO plays -- regulator and administrator.
As the cost of managing an exempt trust works out less expensive than being a part of the EPFO, there is always reason for organisations and employees to prefer exempt fund status to one under the EPFO. The EPFO must also understand that by bringing the existing exempted trusts under its ambit, its corpus will almost double, making its deficit go up that much more.
(email@example.com) 4th April 2008 From India, Delhi