Employee Provident Fund popularly called EPF is managed by the EPFO. You and all salaried employees contribute to the EPF and your employer makes an equal contribution. You get a lump sum (Your contribution + employers contribution + interest), when you retire. EPF offers interest of 8.55% for FY 2017-18.
Many people believe EPF is not a good investment. But, take a look at the interest offered by some other popular investments. PPF currently offers 7.6% for the quarter, July to September. The NSC interest rate in 2018 was 7.6% a year. Most fixed deposits offer 6.5-7% a year on deposits of tenure 1-5 year.
Take a look at what the EPF offers. An interest of 8.55% for FY 2017-18. This is in spite of EPF interest rate being at a 5-year low. Did you know that EPF invests in stocks? Yes, EPF invests in the stock markets to give better returns.
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Why invest in EPF? You get a high interest and tax benefits. EPF enjoys the EEE benefit. The money you invest enjoys Section 80C benefits up to Rs 1.5 Lakhs a year. The interest accumulated and money withdrawn at maturity is tax free. This makes the EPF an excellent investment.
EPF invests in Government Securities, Debt securities, money market instruments and term deposits of banks. EPF also invests in stock markets through Index Funds and ETFs.
EPF started investing in stock markets in 2015 for the very first time. EPF invests in ETFs run by SBI Mutual Fund, UTI Mutual Fund and CPSE ETF. Estimates show the EPFO has earned around 13% from investments in the stock market, compared to investments in debt which gave around 8.5%. You get the money invested in stocks in the form of units just like mutual funds.
Frightened of stocks? Afraid all your retirement money is lost? Read on. EPFO has around 8.5 Lakh Crores and it is not investing this money in stocks. Rather, EPFO is investing just 5% of the incremental corpus in stocks. Incremental corpus means money accumulated in the current financial year. The EPFO has the option to invest up to 15% of the incremental corpus in stocks, but it is sticking to just 5%.
Stocks are an excellent investment and give returns higher than inflation over the long-term. They are also quite safe over the long term.
EPF is an excellent investment and you can also avail loan against EPF in case of emergencies. With EPF you can repay a home loan, purchase a plot, repair your house, or get a loan for marriage, medical expenses and education.
If you had to avail a personal loan for marriage/medical emergency, interest would be around 14-20% a year. An education loan costs around 10-11% a year. You can save interest if you avail a loan against EPF.
Construct a home: You can use the EPF to construct a house. If you have completed 5 years of continuous service, you can make a partial withdrawal from the EPF which is tax free. You can withdraw up to 36 times of the basic salary. This type of withdrawal can be made only once and the property must be in your/spouse name.
Repay a home loan: You can use the EPF to repay a home loan. You get this facility if you complete 10 years of continuous service. This type of withdrawal can be made only once and up to 36 times basic salary.
Purchase a plot: You can use the EPF to buy a plot. You get this facility if you complete 5 years of continuous service. You can withdraw up to 24 times of the basic salary. The plot must be in your/spouse name.
Loan for medical expenses: You can get money from EPF for the treatment of spouse, son, daughter dependent father/mother for a serious illness like heart ailments, TB, Cancer, Paralysis or Mental Derangement. Hospitalization must be for more than a month. You can take 6 time’s basic salary or your (total employee) share, whichever is less.
Loan for marriage: You can avail a loan for marriage of son, daughter, brother or sister, if you complete 7 years of continuous service. You get up to 50% of your (employees) contribution.
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