All you need to know about EPF

A wise person had once said, “it is never too early to start planning for retirement”. While there are multiple retirement plans available in India, one scheme that has the maximum recall value for salaried individuals is the Employee Provident Fund (EPF) scheme. 

What is the Employee Provident Fund (EPF) scheme?

Launched in the year 1952, the EPF scheme seeks to provide employees with a way to plan for their retirement.  This social security scheme enables employees to save a certain portion of their monthly income in a fund dedicated to financial planning for important life events such as retirement, child’s marriage or education, etc. The USP of this scheme is that there are two sets of contributors – the employee as well as the employer. All companies or establishments which employ 20 or more people need to contribute to this scheme. Currently, there are more than 6 crores active PF subscribers in the country.

Here are some of the benefits associated with the Employee Provident Fund (EPF) scheme in India:

• It Helps to build a sizeable corpus by the time you reach your retirement stage
• It is an affordable financial planning tool as you do not need to invest a large lump-sum.
• The scheme offers a host of tax concessions and benefits
• It acts as a financial back-up during emergencies

Contribution

Employees need to contribute 12% of their salary towards PF contribution every month. The employer makes a matching contribution. The employer’s contribution is split in the following manner:

• 3.67% towards the Employee Provident Fund (EPF) Scheme
• 8.33% towards Employee Pension Scheme (EPS)

(Salary for the purpose of EPF includes basic salary and dearness allowance. Employer’s contribution is 10% for jute, brick, beedi and guar gum industries or companies which have been declared as sick.)

Employees are allowed to contribute an additional amount (in excess of 12% but limited to 100% of their salary) towards the EPF scheme and earn interest on the same. However, employers are not required to make an additional contribution at par with the employee’s voluntary contribution.

Rate of Interest

The EPF interest rates are notified by the Government on a yearly basis. The rates are decided after taking into consideration a host of factors such as economic growth. For FY20, the EPFO has lowered the interest rates to 8.5% per annum (from 8.65% in the previous year). Here is a look at the EPF interest rates in the past.

Impact of tax on EPF deposits

EPF deposits are exempt from tax at all three stages – deposit, interest accrual and maturity. Additionally, investments made in Employee Provident Fund (EPF) scheme qualify for deduction as per Section 80C. However, the tax exemption benefits are not available if the withdrawals are done before the completion of five years.

Transfer of EPF

EPF offers funds transfer facility when you change your employer. In this process, the UAN (Universal Account Number) plays a critical role. This 12-digit number is like a social security number and remains constant throughout an individual’s life, irrespective of the organization he or she is working with. UAN allows employees a single unified platform through which they can transfer their funds between companies, download PF statement as well as make withdrawals.

Knowing your EPF Balance

EPFO has leveraged technology to make employees’ lives easier. They can check their EPF balance through multiple ways:

• Through the EPFO website
• On the Umang App launched by Government
• By sending an SMS 
• Giving one missed call

Withdrawal of EPF

While EPF is broadly seen as retirement plans, it can also be used to finance other important life events such as marriage, education, house purchase or medical expenses. Partial withdrawals (referred to as non-refundable loans) are permitted after the completion of five years.

Summing it up

Employee Provident Fund (EPF) scheme is one type of retirement plan in India that is in-built in the system. Being a risk-free investment avenue that can help you amass a considerable corpus to meet your financial needs post-retirement, it is a win-win deal for all salaried individuals.

ELSS – Why they are a must in your portfolio?

Mutual Funds have taken over the financial world. While most people invest in mutual funds with the hope to grow their money and meet their financial goals, there is one more important aspect that some mutual funds take care of – reducing your tax burden. ELSS are tax-saving mutual funds that are eligible for tax exemptions as per the Income Tax Act. 

How ELSS Funds work?

Equity Linked Saving Scheme or ELSS are diversified open-ended mutual funds that predominantly invest in equity and equity-related instruments. As per the SEBI Regulations, these schemes need to mandatorily have 80% equity exposure. ELSS Funds invest across market segments (large-cap, mid-cap, and small-cap) and industries. The core objective of these schemes is to maximize wealth appreciation in the long run.

ELSS Mutual Fund Benefits

So, are you wondering why you should include this tax-saving mutual fund in your portfolio? Read on. 

There are a lot of ELSS Mutual Fund Benefits wherein only the top five reasons are listed here. Read to know why you should consider investing in these mutual fund schemes.

1. Tax Exemption

The biggest advantage of these schemes is that they qualify for tax-deduction as per Section 80C of the Income Tax Act. You can claim a deduction against investment in ELSS up to Rs. 1.5 Lakhs in a financial year.

2. Higher Returns

ELSS Funds have the potential to generate the highest returns amongst all tax-saving instruments. ELSS returns are market-linked and their high equity exposure enhances their return generating capability, especially in the long run. In the last three years, these funds have generated about 13.18% returns, making them the most lucrative (financially) tax-saving option.

Additionally, these schemes offer better post-tax returns. Long-term capital gains till Rs. 1 lakh (per fiscal year) are exempted from tax. The gains over that limit are taxed at 10%. Short-term capital gains carry a tax rate of 15%. Higher returns coupled with better tax rates give double benefits to investors.

3. Shorter Lock-in

Investments in ELSS have a mandatory lock-in period of three years as compared to the other products eligible for tax deduction under section 80C. Thus, compared to other tax-saving alternatives, this is the shortest lock-in period. This is one of the most important of the ELSS Mutual Fund Benefits.

A look at this below table will help you do the comparison:

Tax-saving instruments	Lock-in Period
Bank FDs (qualifying for tax exemption)	5 Years
National Saving Certificates	5 Years
ULIPs	3 years
Life insurance policies	Minimum  of 5 years
PPF	15 Years (partial withdrawals are allowed from the 7th year)
NPS	Till retirement

4. Professional fund management

One of the reasons mutual funds have become a preferred investment choice for investors is that they are professionally managed by financial experts. Fund managers are well-equipped with technical and market knowledge to make the best decisions for the investor’s portfolio. This becomes easy after you understand how ELSS Funds work.

5. Flexibility

ELSS Funds offer a great deal of flexibility to investors. For example, investment in Public Provident Fund cannot exceed Rs. 1.5 lakhs in a year. There are no such restrictions on ELSS investments. Additionally, unlike ELSS, other-tax saving instruments come with an end date. Hence, you can continue to invest money in ELSS and link them to a specific financial goal.

So, once you understand how ELSS Funds work, the next question becomes extremely important.

So, how do you choose the right ELSS fund?

These factors can help you select the best ELSS Fund for your portfolio.

1. Fund House’s track record
   A good fund house can make all the difference to your investments. Look at the track record of the fund house, quality of fund managers, research capabilities, etc.
   
2. Returns
   A good fund should be able to perform consistently well in absolute terms as well as in comparison to peers and benchmarks.
   
3. Costs
   Every fund houses levy a charge for managing the investor’s money. It is expressed in the form of a percentage and is known as the expense ratio. Higher is the expense ratio, lower is the net income for the investors.
   
4. Financial parameters
   Some financial ratios also help you in choosing the right fund. Factors such as standard deviation, alpha, beta,  Sharpe ratio enables you to understand the risk profile of funds.

Final Words

The wide range of ELSS Mutual Fund benefits makes them an all-rounder. They help to prevent tax outflows as well as grow your corpus. If you stick with them for a long time period, they have the potential to make you a very happy investor.

Invest in a PPF scheme to get tax benefits and risk-free returns

When it comes to investment avenues, there are market-linked investment avenues as well as fixed-income investment avenues. Market-linked avenues provide non-guaranteed returns while fixed income avenues do not depend on the market. They offer a fixed rate of interest irrespective of the volatility in the market. A PPF scheme is a fixed income investment avenue which is quite popular among investors. 

Let’s understand what this scheme is and how it gives you tax benefits and secured returns – 

What is a Public Provident Fund (PPF) Account?

A Public Provident Fund (PPF) account is an account which you can open with your bank. It is a long term savings account which helps you accumulate a guaranteed corpus through fixed interest incomes. The money that you deposit in the PPF Account continues to earn interest at a specified rate and when the account matures you get a lump sum corpus.

Public Provident Fund (PPF) Account eligibility

A PPF Account can be opened by resident Indian individuals. Hindu Undivided Families, companies or NRIs are not allowed to open a PPF Account in their names. Moreover, the PPF Account cannot be opened or operated on a joint basis. One account is allowed in the name of one individual only. 

How does the Public Provident Fund (PPF) Account work?

The PPF account can be opened with any bank. You need to make a minimum deposit of INR 500 to open the account. The maximum deposit which is allowed is INR 1.5 lakhs. Once opened, the account should be kept active by making at least one deposit in the account. You can make a deposit either in a lump sum or in instalments as per suitability. The deposits accumulated in the account earn interest which is determined and fixed by the Government of India. This interest rate is reviewed every quarter and can increase or decrease. Currently, till the quarter ending on 31st March 2020, the PPF interest rate fixed by the Government is 7.90% per annum.

Maturity and withdrawals 

The PPF Account has a fixed tenure of 15 years. This tenure can be increased by 5 more years if you want to stay invested. Once the tenure of the account comes to an end, the account matures and you can redeem it to avail a lump sum corpus. 

Partial withdrawals are permitted from the PPF Account before the account matures. Such withdrawals are allowed from the 7th year of deposit. The amount of withdrawal is limited to 50% of the balance of the PPF Account as at the end of the 4th year. One partial withdrawal can be done from the account in one financial year starting from the 7th year of opening the account.

Public Provident Fund (PPF) tax benefits 

As mentioned earlier, the PPF account is a tax-saving investment avenue. The Public Provident Fund(PPF) tax benefits which you can avail from your investments into the PPF scheme are as follows –

Public Provident Fund (PPF) tax benefits

• The amount of money invested into the PPF account is allowed as a deduction under Section 80C of the Income Tax Act, 1961. The maximum deduction allowed is limited to INR 1.5 lakhs
• If you make partial withdrawals from the PPF Account, the amount of withdrawal would also be allowed as a tax-free benefit in your hands.
• The fixed interest income that you earn on your PPF contributions is completely tax-free.
• When the account matures and you redeem the account, the accumulated balance which you receive from the investment is tax-free. You don’t have to pay any tax on the redemption proceeds from the PPF Account and you can get a tax-free corpus.

A Public Provident Fund (PPF) account is, therefore, a tax saving as well as a risk-free investment avenue. You should invest in the scheme for the benefit of availing fixed returns and also to lower your tax liability.