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Why shouldn’t you park your total retirement financial savings in EPF and VPF?

Share this…FacebookPinterestTwitterLinkedin Why you shouldn’t park your total retirement financial savings in EPF and VPF?&nbsp New Delhi: Ravi Ahuja…

By Staff , in Investments , at December 21, 2021

Why you should not park your entire retirement savings in EPF and VPF?

Why you shouldn’t park your total retirement financial savings in EPF and VPF?&nbsp

New Delhi: Ravi Ahuja is a middle-aged, risk-averse non-public sector worker and isn’t accustomed to fashionable funding merchandise. Nevertheless, he’s a diligent saver, who contributes as a lot as doable to his workers’ provident fund (EPF) and voluntary provident fund (VPF) each month. Upon retirement, he’s planning to take a position the proceeds from EPF and VPF in authorities saving schemes on the submit workplace. He feels secure and safe with EPF and will increase his VPF contribution each yr. Is Ravi doing the appropriate factor?

VPF is a voluntary scheme however the employer doesn’t match the worker’s contribution. VPF is a disciplined approach to make investments because the month-to-month contribution will get deducted even earlier than the wage is paid. The funding fetches the identical quantity which your funding in EPF earns. Each EPF and VPF contributions are eligible for deduction below Part 80C of the Revenue Tax Act, as much as a most of Rs 1.5 lakh annually.

However regardless of the above benefits of the VPF and EPF, one shouldn’t park all his retirement financial savings in these two schemes as these are fixed-interest paying devices and with rate of interest falling within the economic system in the long run, curiosity earnings from these two schemes may even decline and you will not get an even bigger inflation-beating return.

Monetary planners say if Ravi has to combat inflation in his retirement, he’ll want a big corpus, and the easiest way to construct it’s to make use of the incomes years when he wouldn’t want it. Given time, investments in fairness belongings resembling fairness mutual funds, can develop right into a a lot bigger worth. Given his choice for secure investments in retirement, it’s extra essential that he offers his corpus an opportunity to develop greater.

Investing in diversified fairness mutual funds by the SIP route for a long term like 15-20 years can actually assist Ravi in constructing a big retirement copus. Reasonably than investing in VPF, if Ravi invests the identical quantity in fairness mutual funds by the SIP route alongside together with his regular EPF contribution, then he’ll have the ability to beat inflation even in his post-retirement years. 

Price mentioning right here is that guidelines for withdrawal, loans, and taxation for EPF may even apply to VPF contributions. Placing all of your funding eggs in a single basket could also be dangerous. Therefore, Ravi ought to select to diversify by investing in fairness MF schemes by the SIP route. 

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