Generating Retirement Benefits - Defined Contribution.

Defined Contribution Process.

In this process the individual takes the risk of the investment. There is a defined amount that is invested by the individual. There is no amount guaranteed as the final return in this method and the final benefits are unknown. The rate of earning of the investment will determine the final benefit.

Types of Defined Contribution Process:

1. Provident Fund (PF):
It is one of the major source of retirement funding for people in India. Here a stipulated sum is deducted from the salary of the employee every month as his contribution to the fund. The employer also contributes a certain sum as his share to the fund.

The fund collected is invested in various instruments (majorly in debt). The earnings of the employee is in the form of interest that gets credited into the provident fund account. The total sum including the interest is paid to the employee at the time of his retirement or resignation from service.
Types of PF:

a. Statutory PF.
b. Recognized PF.
c. Unrecognized PF.
d. Public PF.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2. Public Provident Fund (PPF):

Provident Fund is available as in investment option only for those who are employed. For the self employed and other professionals there is an option of Public Provident Fund. The scheme can be opened with several Public Sector Banks and Post Offices.

 Min Amount of investment is Rs. 500 per year.
 Maximum amount of investment is Rs. 70000 per year.
 This is a 15 year scheme.
 It can be extended in blocks of 5 years after the expiry of 15 years.
 There is no limit to the number of extensions.
 Annual compounded earnings rate is 8%.
 Interest is credited each year, but the amount is paid on maturity.
 Tax benefit under 80C is available.