If you are a salaried employee, you have to compulsorily invest a part of your salary, in the employee provident fund, popularly called EPF. This is a compulsorily investment, which you are not happy with. But, you have no choice….You would have gladly spent this money buying a laptop, a car, why go on a foreign holiday or just blow it all away.
The Government in its Wisdom, has thought of something you have not bothered to think of, all these years. Your Retirement…. Life spans in India have been increasing in the past decade. Good medicines and technology can help you live, well into your Eighties. With no salary after retirement, how will you meet your living expenses? Health expenses at this age are very high. What will you do? The answer…EPF also called employee provident fund.
Inflation though decreasing is still quite high. Make sure the returns from your investments, are more than inflation. We at IndianMoney.com will make this easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products.
Your boss pays you a salary each month. About 40% to 50% of this salary is your basic salary. An amount of 12% of your basic salary, is compulsorily deducted by your employer. This amount is deposited in an account in your name, called the employee provident fund. Your employer makes an equal contribution (contributes the same amount as you have contributed), to this account. This account is maintained by the EPFO.
A small portion of your employer’s contribution, goes to an account called the EPS (Employee Pension Scheme). The money in this account gives you a pension after retirement.
The EPFO invests 10% of its incremental corpus (new money that comes into the EPF each year), in equity. EPFO invests your money in exchange traded funds, popularly called ETF. ETF is a basket of securities (collection of stocks), which reflects the composition of a particular index like the Nifty or Sensex. An ETF is traded on the stock exchange, just like stocks. EPFO has picked two ETF schemes to invest your money. This is the SBI ETF Nifty and the SBI Sensex ETF. SBI ETF Nifty mimics (copies) the Nifty-50. SBI Sensex ETF mimics (copies) the BSE Sensex-30.
The EPFO tasted a lot of success investing in equities through ETF’s. Now it wants to jump to the next level. EPFO will now invest your money in blue-chip stocks. Blue-chip stocks are stocks of reputed Companies. These blue-chip stocks will not be the stocks, included in the Nifty-50 and Sensex-30. However, these stocks will be within the top 100 stocks, in terms of market capitalization.
(Market capitalization = Market price of stocks * Number of subscribers who have invested in the stock).
The EPFO will also invest your money in quality mid cap stocks. However, EPFO will not directly invest your money in stocks. It will invest in quality mid caps and blue chip stocks, through the ETF route.
EPFO is increasing its exposure to equity. Investment in equity can be quite risky. As EPFO increases its exposure to equity, it cannot depend only on two ETF’s (SBI ETF Nifty and SBI Sensex ETF), to make the investments. It has to diversify (spread out investments across more ETF’s). What better way than investing in blue chip stocks and quality mid caps through the ETF route?
Stock markets would be very happy with money pouring in from the EPFO. This is long term money, which brings stability to the stock market. Most of these money will flow into large-cap stocks. Good blue chip stocks and quality mid cap stocks will benefit and see a price increase, as more and more money flows into them.
Your investments in equity do well, only if you stay invested for the long term. You need to stay invested in equity, for at least 3 to 5 years, to get good returns. EPFO makes sure your money stays invested in equity, for a real long time. You are soon on the path to riches. 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.
Subscribe to our Youtube Channel
Hello friend! I am your personal financial advisor. By the end of this interactive session, I will help you to plan yours and your family's finances to ensure a better future.