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How a provident fund works
Every month a share of your basic salary (commonly 10%) is deducted for the provident fund and your employer adds the same amount. The fund is invested — often in government savings instruments and bank deposits — and the profit is added to every member's balance.
What affects your final balance
- Contribution rate — employee and employer percentages of basic.
- Increments — as your basic grows, so do the deposits.
- Profit rate — declared each year by the fund's trustees.
- Time — compounding does most of the work in the last years.
Example
Basic ৳30,000, 10% + 10%, 5% yearly increment and 9% profit for 15 years grows to about ৳30 lakh — of which only about a quarter is your own deduction.
Tax
For a recognised provident fund, your own contribution qualifies for the investment tax rebate, the employer's contribution is a tax-free perquisite within limits, and the fund's income is exempt. Check the current Income Tax Act limits each year.
Vesting
Your own contribution and its profit are always yours. The employer's share usually becomes yours only after a minimum service period in the fund rules — leaving early can mean losing part of it.