Employees’ Provident Fund (EPF)

Compound interest is the 8th wonder of the world. He who understands it earns it; he who doesn’t, pays it” rightly said by Albert Einstein. Everyone enjoys when money works for money. Employee Provident Fund is one such popular & appealing investment product, especially for Salaried Individuals.

EPF or Employee Provident Fund is a retirement scheme that every salaried employee is entitled to avail from their employer if the organization has 20 or more employees. As an employee, your enrolment for EPF happens at the discretion of your employer, and therefore the process is administered in its entirety by your employer. Currently, interest accrued for the year 2019-20 is at 8.5% to be disbursed in 2 intervals. Up to 8.15% has already been credited to the accounts & rest 0.35 % shall be provided in December.

EPF comes with plenty of pros but the ones that are most captivating are:

Baby Steps:
An early start of small monthly contribution is kept aside from the employee’s salary & invested for securing retirement.

Equal & Added Advantage:
Over and above employee’s contribution “EMPLOYER” also contributes an equal amount to the fund i.e 12% of basic plus dearness allowance. However, the employee can contribute more than the prescribed limit of 12%.

No Loss on switching Jobs:
On switching jobs one need not worry about his PF balance, one has to share the existing Unique Account Number(UAN) number to his new employer for portability of funds. UAN helps to manage EPF accounts among different employers.

Easy Withdrawals:
Medical Emergencies & Unemployment are the only reasons where the fund allows one to withdraw money without any minimum service tenure required. Medical Treatment is covered not only for self but also spouse, children, and parents. However, subject to conditions many other reasons like marriage, repayment of home loan etc. are covered.

Tax Saver:
Employee’s contribution to the fund is eligible for tax deduction up to a maximum of Rs. 1,50,000 including the accrued interest on the EPF. The maturity amount is also tax-free on completion of 5 years.

The following points are to be considered before investing:

Lock-In:
No individual can withdraw money before retirement & also withdrawal for reasons other than specified is not permitted.

Insufficient Corpus:
One’s retirement needs shall not be fully met with the corpus available on retirement considering the inflation & interest rate.

While people are fond of EPF as an investment product, there are other similar products like Public Provident Fund(PPF), National Pension Scheme(NPS), Direct Mutual Funds, Stock Markets, etc.

PPF is a voluntary PF where other than employees can also contribute but there is no equal & added advantage of employer’s contribution & also the returns are lower as compared to EPF at 7.1%(September to December 2020). However, the maturity is after 15 years making it attractable for Long Term Goals other than retirement. You can read more about PPF here.

NPS is a specially designed product for retirement. An employer is at free will to contribute to the same for employees. The returns are higher as compared to EPF around the range of 9.5% to 12 % but tentative.However, the maturity falls at the same time as EPF i.e. retirement. You can read more about NPS here.

Direct Mutual Funds are suitable for users who are willing to take a calculated risk to earn higher returns & accumulate a larger corpus. While stocks are suitable for self-learners aiming for the high returns with high capacity for risk.

A green lush tree reaping sweet fruits is the result of a small seed, regular water and sunshine with plenty of time & patience. Similarly, one’s EPF corpus shall bear sweet fruits of returns & corpus with regular investments by employee & employer with plenty of time & patience.

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Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing. Past performance is not indicative of future returns.

Please consider your specific investment requirements, risk tolerance, investment goal, time frame, risk and reward balance and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs.