How To Invest Your EPF Savings?

Published on: 27 October 2021

Modified on: 10 April 2023

Highlight: Using your EPF savings judiciously for further investment can help you finance your post-retirement life without falling short in any aspect.

If there is one thing that the COVID-19 pandemic has taught us, it is that savings are critical. When the pandemic threw hundreds of people in business and other private-sector employees under the bus of unemployment, it was these savings that came to the rescue. No wonder one of the first pieces of advice that you get, once you step into adulthood and sometimes even way before that, is “save judiciously.” Wise saving and investment is one of the first steps towards financial security and can come in handy on rainy days. Even years after you stop earning, this is why the government has several schemes to promote investing in saving for future needs. One such scheme is the Employee’s Provident Fund or the EPF. 

EPF is a savings scheme that the EPFO has launched under the administration of the government of India.

The savings scheme is targeted towards the salaried class to facilitate their habit of saving money to build a significant retirement corpus.

Also Read: Here’s How To Find The Right Balance Between Saving, Investing, and Spending

Eligibility criteria to be an EPF member in India

This savings scheme is open to both private and government employees. Additionally, any organization that employs more than 20 people is bound to extend the benefits of EPF to its employees. The regulations prescribed by EPFO demarcate that an employee whose basic salary is more than Rs 15,000 a month at the time of joining is not eligible and is called a non-eligible employee. 

Employees earning less than Rs 15,000 a month have to become members of the EPF, and this is mandatory under the instructions of the Miscellaneous Provisions Act, 1952. However, an employee who is earning above the prescribed limit (which is currently Rs 15,000) can become a member with the permission of the Assistant PF Commissioner if the employee and his employer agree. 

The minimum investment amount should be 24% of the basic salary. Out of which 12% is contributed by you and the remaining half is contributed by your employer. 

To incentivize women’s employment in the formal sector and augment their home salary. The government of India reduced the contribution of women to this 24% to 8% for the first three years of their employment in the budget of 2018. The lock-in period of this scheme is until you retire or resign. 

When an employee becomes eligible under the EPF, they are entitled to several benefits under the scheme. These included both insurance benefits and pension benefits. 

Interest rate of EPF

In the previous financial year of 2019-2020, the pre-fixed rate of interest offered by the EPF scheme was 8.55%. The EPF enjoys tax exemption benefits. This means that the interest accumulated by the amount invested in a PF online account is tax-free.

The main and most important benefit of investing in this plan is that you can start with a minor amount of savings and end up reaping a huge corpus of wealth when you retire.

The interest on the EPF account is calculated every month on the monthly running balance. To calculate this, you can use various EPF calculators available online. 

Also Read: How much of your salary should you save?

How to invest your EPF savings

With a lifetime worth of savings in your EPF account, you might be thinking that you are going to have one of the most smooth retirements possible. However, this might not be true. This is because funding your expenses after retirement can be a tricky affair. Investing in your EPF savings is one way to generate an income even after you stop earning. Here are a few ways in which you can invest your EPF savings:

#1 Invest in SCSS

The Senior Citizens Saving Scheme is a scheme for retired individuals. It offers an interest rate of 7.4% and the lock-in period is five years. The investment amount can range from Rs 1,000 to 15 Lakhs. This investment avenue is safe from market changes and thus is safe. In addition, it is backed by the government of India, ascertaining its authenticity. 

#2 Invest In Fixed Deposits

Fixed Deposit is one of the most popular investment options when it comes to saving. An FD gives you assured returns on your principal amount. The interest rate of FD tends to vary depending upon the bank providing it. Tax-saving fixed deposits have a lock-in period of 5 years. The minimum amount to make a bank FD is as low as Rs 5000.

#3 Investing in Real Estate Property 

This could be a viable option, but only if you already own your primary residence. This is because the only way you can draw income from a property is rent. You can’t draw rent from a living space you reside in. The investment can be in any real estate space that offers you a rental income. Regardless, as we all know, investing in property is one of the least liquid forms of investment, and its value can plunge if the economy is crashing. At present, rental incomes are also fairly low when compared with the other investment options mentioned above. 

Conclusion 

EPF is one of those savings schemes that help you safeguard your future after retirement. Using your EPF savings judiciously for further investment can help you finance your post-retirement life without falling short in any aspect. 

By choosing the right mix of retirement options, you can build a profitable investment portfolio that comes in handy in times of need. To know more about EPF savings and their investment avenues, head to the Fibe blog. 

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