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EPFO Could Invest More Money In Stocks?

IndianMoney.com Research Team | Updated On Wednesday, November 14,2018, 04:20 PM

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EPFO Could Invest More Money In Stocks?

 

 

 

The Employee Provident Fund is managed by an organization called Employees Provident Fund Organization (EPFO). Under the EPF scheme, you (employee) will make a certain contribution towards the scheme. Your employer makes an equal contribution (contributes the same amount as you have contributed), to this account. This account is maintained by the EPFO.

EPFO is a very important retirement investment, for the citizens of India. EPFO invests 15% of the contributions it receives in equities and the remaining 85% in debt. Now, EPFO wants to allow employees who earn a high pay, to contribute 25% of their EPF contributions, to stocks. For employees who earn less, the maximum contribution to equities remains at 15%.

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EPFO Could Invest More Money In Stocks?

 

EPFO invests your money in stocks via ETFs (Exchange Traded Funds). An ETF is a collection of stocks which reflects/tracks a particular index, like the Sensex or the Nifty. The EPFO invests in equities through the SBI Sensex ETF and the SBI Nifty ETF.

 

SEE ALSO: 5 New Steps Taken By The EPFO

 

1. Why is the EPFO encouraging high earners to invest more in stocks?

 

The EPFO always followed the one-size-fits-all policy, when it came to investing Crores of rupees for the retirement of Crores of subscribers. Now, EPFO is doing a rethink on this policy. Richer subscribers want a higher return from the EPFO. This is because FDs and even the PPF are offering lesser interest. So, rich subscribers want the EPFO to invest more money in stocks.

Now, EPFO will be able to compete with NPS, which allows investors to invest 50% of their savings in equity.

Not many subscribers to the EPF, are comfortable with investments in stocks. So, the EPFO does not want to force these subscribers to invest in stocks.

EPFO believes that only subscribers who are familiar with stocks must invest in them....So, why not the high earners?

See Also: Stock Exchanges In India

2. Why is EPF a good investment?

 

EPF offers you and other subscribers an interest of 8.65% a year for FY 2017-18. This is much higher than bank FD rates which are around 6.5-6.75% a year. PPF currently offers an interest rate of 7.6% for January - March 2018.

So, EPF offers very high interest to its subscribers, even in a falling interest rate regime. EPF also enjoys EEE benefits. The amount you invest is tax deductible up to Rs 1.5 Lakhs a year under Section 80C. The interest earned and the amount withdrawn is tax-free.

Soon, you will see the ETF units and the Non-equity component, of your retirement corpus in your EPF account. You have the freedom to withdraw the non-equity component and retain the ETFs in your account, even after retirement. Be Wise, Get Rich.

 

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IndianMoney.com Research Team

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