EPFO raises interest rates of EPF; should you invest?

Anushka Trivedi
Updated: 03 Apr 2023, 02:53 PM IST
TL;DR.

Sometimes, a slight increase in interest rate could help a lot. This article will explain the rate hike and whether you should invest.

The EPFO accumulated corpus stands at over ₹15 trillion now and it has nearly 60 million subscribers. 

It always feels wonderful when you get by without doing anything actively, for example, dividends or increased interest rates. It is the primary reason why fixed-income-based investing is more focused on passive investors, as regular income received by the investor feels like free money.

Just as happened in the case of increased interest rates, EPFO (Employees Provident Fund Organisation) has proposed to raise the interest rate of EPF (Employees Provident Fund). However, the interest rate hike looks small in percentage, which is 0.50%, from 8.10% to 8.15%.

Let's understand in detail about it and understand whether you should invest in EPF or not.

What is EPF?

EPF stands for Employees' Provident Fund, which is a retirement benefits scheme available to employees in India. It is a government-mandated savings scheme where both the employee and employer make contributions towards the employee's retirement fund. The contributions are made on a monthly basis, and the funds are managed by the EPFO.

The scheme is applicable to all establishments that employ 20 or more employees. The EPF also provides various benefits to employees, such as insurance coverage and housing schemes.

Requirements for investing in EPF

To invest in the EPF, one must be an employee of an establishment that falls under the purview of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952.

Additionally, there are some other requirements that one should keep in mind:

  • Salary: EPF contributions are mandatory for employees who earn a basic salary of up to Rs. 15,000 per month. However, employees who earn more than this can still contribute voluntarily.
  • Employer's contribution:The employer must contribute 12% of the employee's basic salary to the EPF account every month.
  • Employee's contribution:The employee also needs to contribute 12% of their basic salary to the EPF account every month.
  • Continuous employment: To be eligible for withdrawal or transfer of EPF funds, the employee must have been in continuous employment with the same employer for a minimum period of five years.

Should you invest after the rate hike?

The rate of return is decent enough to start investing as it is much better than keeping your money in a savings bank account or depositing in a fixed deposit account. When it comes to making the decision of whether you should invest in a particular investment product or not, here are mainly three things to consider-

Financial objective

If the financial objective is to invest in your retirement funds, you can keep investing in EPF funds up to a limited amount. Also, if the objective is to save taxes as you can claim a tax deduction of up to ₹1.5L under section 80C.

Risk factor

If your risk-taking capacity is low and you are not willing to invest aggressively in markets, you can invest in EPF for sure.

Market knowledge

If you have expert knowledge of market-linked instruments and are willing to take risks of investing in the same, you can start investing in the market itself. But, if it is not the case, then it is better to keep investing in EPF as it is always better to get inflation-beating returns than lose your capital.

Conclusion

When any regulatory body takes a step forward to propose the interest rate, the ultimate beneficiaries will be the investors only. So, it is always good to invest after looking at the possible scenario of risk, return, and investment opportunities available to you.

Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com


 

 

First Published: 03 Apr 2023, 02:53 PM IST