The Employees Provident Fund Organisation (EPFO) is likely to retain 8.65% interest rate on provident funds (PF) for the financial year 2017-18 at its trustees’ meet later this month, according to sources. If this happens, this must be a good news for crores of salaried people who willingly or unwillingly still depend on their EPF corpus for retirement. However, at a time when there are many other good investment options available in the market, which can give better returns, does it make sense to remain at the mercy of retirement body EPFO and the government, and solely depend on EPF for generating one’s retirement nest egg?
Financial experts say that EPF’s major attraction has been two-fold: The additional corpus which the employer contributes and the compounding interest. “These ensured the subscribes of EPFO a decent corpus for their retirement, though the money has been majorly utilized for intermediate goals. However, with the government thrust on NPS now and EPFO investing in equity markets, there is no doubt that investors need higher returns to accumulate a good corpus from their own contributions. So, it’s wiser for investors not to depend only on EPF for their retirement,” says Jitendra P S Solanki, MCSI, CTEP, CFP, and the author of ‘Financial Planning for Special Needs Children Families’.
According to experts, EPF has always been viewed as a more stable retirement option given its higher interest rates. However, in the last few years a lot of people have opted to invest in other avenues like ELSS as they tend to give higher returns.
“If looked from the perspective of fixed saving, EPF is a good option, given that withdrawals on EPF post 60 and if one has completed more than 5 years in service are tax-free. However, it all depends on the investment goal of investors. Also, what seems a decent amount today to retire with may not be the same after 30 years when inflation is adjusted. So, it is wise to park additional funds in other retirement options as well,” says Adhil Shetty, CEO, Bankbazaar.com.
For instance, NPS is a great option as it not only helps you plan for retirement, but also gives you an additional tax benefit over and above Section 80C. “Do remember though that in NPS only 40% of the withdrawal amount is tax-free,” informs Shetty.
PPF is another great option and has a much shorter lock-in period of 15 years, after which the amount can be withdrawn.
There are many other options for investors to accumulate the desired corpus for retirement. For instance, “investors may consider mutual funds for long-term financial goals like retirement as they provide a variety of options as well as the flexibility to manage the return. One can expect 12-15% return from equity allocation. Even NPS is a good vehicle which provides good exposure to various markets. The higher equity allocation has been generating 10-11% return from NPS. However, while selecting these avenues for retirement, investors should adopt the asset allocation approach and also have exposure to debt. PPF, long-term debt mutual funds are a good choice here,” advises Solanki.
The bottom line is that you can still continue with EPFO, but that should not be the only means for retirement. You should invest in additional instruments to fulfill your retirement needs.