If you are a salaried employee, you must be well familiar with the Employee Provident Fund popularly called EPF. Out of your basic salary, 12% is compulsorily deducted and added to your EPF account. Your employer makes an equal contribution. This money is managed by the EPFO.
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To the more than 4.5 Crore EPF Subscribers, there's bad news. EPFO has slashed interest rates. EPFO has cut interest rates to 8.55% for FY 2017-18 on EPF deposits which is a 5-year low. Subscribers were expecting the EPFO to keep the interest rates constant at 8.65% which was the rate for FY 2016-17.
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1. Is EPF a good investment?
EPFO has slashed interest rates to 8.55% for FY 2017-18. Subscribers expected the EPFO to maintain interest rates at 8.65%. EPF used to give higher returns in the past. So is EPF a good investment? Public Provident Fund popularly called PPF, is a very popular investment in India. But, the Government has slashed interest rates on small saving schemes including PPF. PPF offers investors an interest of 7.6% for the quarter January-March 2018. So which is better? PPF or the EPF?
Now, FD is a better investment than EPF, Right? FD offers an interest of around 6.5-6.75% a year. EPF offers much more. The interest you get on FD is taxed. EPF enjoys the EEE benefit. The amount you invest up to Rs 1.5 Lakhs a year, enjoys Section 80C benefits. The interest and amount withdrawn at maturity are tax-free.
National Pension Scheme popularly called NPS, is popular with investors, as you can invest up to 50% in equity. Many investors consider NPS to be better than EPF, because equity generally gives high returns, but at high risk. All this is changing. EPFO allows good earners to contribute up to 25% in equity. Investments in equity is via ETF. Soon, you and other subscribers will get to see ETF units in your EPF investments. EPFO currently invests 85% in debt and 15% in equity.
But, EPF wins over NPS, when it comes to tax benefits. For NPS withdrawal at maturity, you have to compulsorily invest 40% of the Corpus in an annuity plan. Out of the remaining 60%, 40% is tax-free and the remaining 20% is taxed. But, EPF enjoys tax-free returns with the EEE benefits. So, EPF is a winner.
EPF still remains an excellent investment for your retirement. It's still the best among fixed-income investments and gives higher returns than PPF and FD. So, stick to your EPF investments. Be Wise, Get Rich.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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