The Employees’ Provident Fund (EPF) is a savings scheme introduced under Employees’ Provident Fund. Employer and employee both contribute for provident fund for each salaried person. This is useful because PF are pooled together from many employees and invested by a trust. This pool generates an interest of 8% – 12%, as determined by the government and the central board of trustees. The current annual interest rate on the official EPF India website is 8.65% for the year 2019-20.
EPF is good way to accumulate money for retirement. It is one of the good instrument for compounding. Albert Einstein said that the power of compounding is the eighth wonder of the world.Compounding by adding the interest into your opening balance. your opening balance for the next year would be calculated as Opening balance + total monthly contributions + interest on the (old opening balance + contribution).
It is allowed to partial withdraw the PF for following scenario’s.
- Education or marriage of yourself, your siblings, or children.
- Immediate medical expenses for yourself, spouse, children, or dependent parents.
- For Renovating and Reconstructing a House
- For Purchasing or constructing a House
Do not do the financial mistake by breaking the PF saving to buy house or renovate the home. Banks and financial institution offers housing loan for 8% interest, but PF offers 8.65 interest. For marriage and education, plan early and start mutual funds with SIP. Invest monthly in mutual funds for education and marriage.
Start mutual funds SIP for marriage and education.
EPF Withdrawal Rules before 5 years of Service:
In case your PF contribution for less than 5 years, do not event think about withdrawing the PF contribution. It would attract heavy tax by TDS and direct tax. EPF withdrawal before 5 years of continuous service attracts TDS on the withdrawal amount. However, if the withdrawal amount is less than ₹ 50,000, no TDS is deducted. The tax will be applicable in the year of withdrawal but the consideration will be done for each year.
PF contribution for less than 5 years, do not event think about withdrawing the PF
PF can be used for unexpected medical emergency. Otherwise it should be used as a instrument for retirement.
0.65 interest makes 16 lakhs different:
0.65 interest makes big different in longer term in housing loan(8%) and PF interest(8.65%). With monthly contribution of 5,000 with monthly 8% interest for 30 years would grow to 74 lakhs. The same amount with 8.65% interest grow to 92 lakhs. 0.65% makes different of 16 lakhs in long term. Don’t do the financial mistake by withdrawing the PF saving.
Don’t disturb the saving, plan the expenses early and start mutual funds SIP for each goal.
- Buy only term and health Insurance Policies.
- Invest in Stock market and Mutual Funds.
- Do not buy anything through Loans or EMI’s.
- Do not invest in FD’s or park surplus money in Savings Account.
- Invest in your business and skill sets.
- Consulate financial adviser.
At age of 27, why fear to manage 7 mutual funds? It is easy…!!!