EPF and VPF (Employee Provident Fund and Voluntary Provident Fund)

Employee Provident Fund (EPF) plays an important role in retirement planning of all salaried individuals.12% of your basic salary will be invested in EPF while your employer will also contribute equal amount towards the same. This is a mandate for all the companies having more than 20 employees.

If you are working for a corporate, look at your CTC (Cost to Company) breakup. It will have an employer contribution and employee contribution towards EPF.

Benefits:

• Tax Free – The investment and the Interest earned through this are absolutely tax free as it is considered under Section 80C of Investment tax act
• Risk free long term Investment – As it is backed by government and not linked to market, the investment is absolutely safe.

Interest rates:

Interest rate for EPF varies every year. It is decided by government. It is fixed at 8.5% for the Financial Year 2013-2014

VPF

VPF is Voluntary Provident Fund. You can have all the benefits of EPF in VPF (Interest Rates and Tax free return) except, your employer will not contribute equal amount of VPF. The maximum percentage of VPF you can invest is 88% as 12% is already mandatory; you can invest 100% of your basic salary in PF (EPF+VPF).  If can approach your employer investing in VPF. The percentage of contribution can vary every financial year

Withdrawal of EPF and VPF

When you leave your company, the PF amount can be withdrawn from the PF account. It will take two months’ time. You can also transfer it to the new employer’s PF account.

Also you can take loans for Housing, wedding and children’s education from the PF account.

But longer you stay in PF without withdrawing; you will have a huge corpus built when the time you retire.

Happy Investing!

The Buffet Way

Words from the world's most successful and Experienced Investor

 

Personal Investment Basics

It is never too late to start investing for your future. The best time to start is now. While you start investing, please remember the following things

         Contingency Fund

First step in your personal finance management is accumulating a contingency fund.  Normally it should be your 3-5 months’ income. You can accumulate it gradually through a simple Monthly Recurring Deposit in your savings bank. Once the target amount is reached you can transfer the same and put it in your savings account or flexible fixed deposit.

 

Motive:  You should have surplus amount to finance your expenses in case your income stops for a while.

        Insurance

Second step is you must have a good life insurance cover and medical insurance for your dependants. There are various investment options available in life insurance. But I will strongly recommend you a term insurance (No money back policy but the life cover will be high for less premium) for life. Life Insurance should be viewed as a risk cover rather than Investment. Mostly all salaried people will be provided with a medical insurance by their employer. Others can opt for good medical Insurance plan for the self and dependants

Motive: To avoid financial risk due to illness and loss of life

Goal Based Savings and Investment

The next step is setting goals. Sit with a pen and paper and list down your long term and short term goals. What are all the things you want to buy? Where you want to travel? What kind of life style you want to pursue?

Next question is very important. When do you want to achieve all these goals? Put a date on it. See how much it costs today and calculate how much it will be when you want to acquire.

Plan your investment accordingly.

For long term goals like higher studies and wedding for your kid, bullion (Gold and silver) and shares are the best bet. Both these have shown promising results so far in long term leaving away short term fluctuation. Simple way to invest in stocks is through Mutual Funds. Find a good Mutual Fund and invest regularly through Systematic Investment Plans (SIP). Gold is simple tested way to beat Inflation (money losing value – we shall have separate post on simple terminologies and financial jargons).

For Short term goals simple Savings Bank RD, certificate of deposits and government bonds will be good option as they have less risk and assured return.

Happy Investing !!