Monday, 23 February 2015

5 Reasons Why I Love EPF Deduction from Salary

Do you feel depressed looking at the PF deduction in your salary slip every month? After reading this post, you will probably not feel so bad about it. Every month, 12.33% of your basic salary excluding other heads like HRA, DA, and other allowances is deducted every month towards Employee Provident Fund (EPF).
Today, in this article I will share why I don’t feel bad about the PF deduction reflected in salary slip.

1. For every Rupee deducted, your employer contributes another Rupee towards your EPF and Pension Fund. As per the EPF scheme, employers are required to contribute the same amount as deducted from your salary.  The entire amount deduced from your salary and two-third of that contributed by your employer is deposited towards EPF. The balance one-third of the amount contributed by the employer is deposited towards Employee Pension Scheme (EPS), whereby you create a corpus to earn pension post retirement.

2. EPF is totally safe, secure and tax-free:  The EPF fund is managed by the EPFO, a government of India organization and is invested only in government or government approved securities. The return on EPF is also fixed by the government every year. 
So, EPF money carries almost nil risk. The income from EPF is also totally exempt from income tax. In case your PF is managed by a company trust, even then the trust is governed by EPFO rules and investments are to be made strictly as per rules. So, even if the company goes bankrupt, it is unlikely that there would be any risk to the amount invested in your PF.
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3. EPF cannot be attached in case of bankruptcy: Say, if you happen to default on a loan  taken from a bank or you need to pay some government dues. Banks and tax authorities can attach your personal property and even bank account. However, balance in EPF account is exempt from being attached under any circumstances and can be claimed by you without any problem.

4. You can nominate your near and dear ones for your EPF:
EPF offers nomination facility on all accounts. Nominee will be contacted by the company or EPFO in case of death of the employee and balance will be paid to the nominee. In case the nominee is not registered, the balance can still be claimed by your legal heirs but the process may take longer.
Now, are you more comfortable with EPF deduction just like I am? 
I hope so. So, how about putting some extra money in your EPF account? Yes, you have the option of investing more in your Provident Fund in the form of Voluntary Provident Fund (VPF).  However, note that there is no matching contribution in case of VPF.

Still not convinced that EPF deduction is a good thing? Here’s what you can do. You can opt out of EPF if you want. Yes, it’s possible to opt out of EPF. It may seem surprising for many people. If you earn a basic salary of more than Rs. 6,500 per month, you have the option to out of EPF. In such case, you will not see any EPF deduction in your monthly salary slip. However, you have to opt out of EPF only in the beginning of your job. 

Tuesday, 10 February 2015

Are there any advantages in becoming a priority banking customer?

Being a “priority banking customer” as the title suggests is being eligible for premium or special services from your bank.  While the idea of being eligible for premium banking services is no doubt appealing, it can at time come with associated charges. So, it is good to understand the general scope of priority banking services that are offered by almost all leading banks in India.  
“Priority Banking Services” are premium services offered by banks to their customers who match their eligibility criteria in terms of level of transactions on their banking accounts, banking accounts balance, and/or number of years of association with the bank. Banks offer several additional services to retain and maintain relationship with their old high net worth customers, who can potentially offer incremental profitable business to the bank.  

Some (indicative list) of the common services/facilities provided to priority banking customers are:
1.  Premium credit cards or debt cards free of cost
2.  Zero charges on RTGS and NEFT transactions via online banking.
3.  Cheque pick-up facility.
4.  Zero charges on balance enquiries.
5.  No charges on cash withdrawals when you transact on other bank ATM in India.
6.  Completely free Cheque book payable at any bank branch in India.
7.  Concessions in locker rent
8.  Free Demand Drafts
9.  Access to exclusive lounges and other areas
10. Exclusive Relationship manager
So as you would understand, many of the above benefits are small convenience based facilities and do not offer any significant benefit to the banking customer.
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Obviously, where banks offer priority banking services free of cost, there is no harm in accepting the offer However, in several cases, a bank expects the customer to maintain high minimum amount balance in his account or pay additional annual fees to avail priority banking services.
Further, while there might not be any annual fees, one needs to be careful as what services are offered free of cost of under priority banking services as the banks may still be charging customers for some services.
One also needs to understand, that with the advent of ATMs, online and mobile banking, a rapidly growing section of regular banking customers have limited requirement for facilities such as Cheque pickups, demand drafts or a need to make branch visits quite often. Anyhow, for a large majority of customers, banking needs are basic and limited to depositing and withdrawing money with occasional requirement of a demand draft.
Hence, for these customers, becoming a priority banking customer by paying annual charges or keeping higher account balances may not make any financial sense. Priority banking services may appeal for banking customers who are not technological savvy and have a high dependence on banking to meet their business requirements such as bulk Cheque or cash deposits, cash management services and frequent requirement to make demand drafts.
It is for these customers, the additional services/features that come with priority banking may hold potential value. If you are one of the high usage banking customers, you can surely look at priority banking services to avail the extra comfort that come along. However, do remember to assess your banking requirements and do a cost benefit analysis of availing priority banking services.