Consider these 9 things before investing in mutual funds!
What is the right way to invest in mutual funds? How do mutual funds work? What kind of risk is involved? Which fund is right for whom? What things should be kept in mind before investing? Watch this video to know-
When Richa Sharma, 40, resigned from her last job, she withdrew her entire provident fund or PF amount accumulated over the last 15 years. Few months down the line she joined the new company but she is still struggling with her investments. This is because no other government scheme is giving her as high return as Employees Provident Fund (EPF). “Initially, I thought to buy a house but that plan got shelved. Now the liquid funds I have invested money in is not giving me matching returns. I took a hasty decision thinking it might cause a problem later to withdraw or transfer the money from EPF. ”
There are many like Richa who withdraw from their EPF accounts without understanding the benefits it offers. EPF is a highly secure tax-saving instrument that provides returns at 8.5% per annum, the highest among all similar government-backed schemes. The interest earned as well as the maturity amounts are also tax-exempt. However, in the last Budget changes were announced that subscriber who invests more than Rs.2.5 lakh per annum, which is around 20,833 per month, will have to pay tax on the interest earned from the amount invested.
Compounding Benefit
The power of compounding does wonders. To give you an example, if you invest a sum of Rs. 10,000 per month which earns a return of 8.5%, this sum grows to Rs 2.3 crore in 35 years. It is important to emphasize that the principal invested in this period is only Rs 42 lakh and the balance is interest earned.
Having said that it is not hard to find people around who withdrew from their EPF account, mostly to buy a house. But one should remember that EPF should be used for building financial security after retirement. Over a long period, it helps one to build a decent retirement corpus and it is advisable not to withdraw from EPF to buy a home or for any other avoidable need. Instead, it is advised to use your other earnings and savings to fund your home. EPF should be kept aside for post-retirement needs. However, if due to any unavoidable situation if you already have withdrawn it is advisable to keep paying back to the corpus through SIP or Voluntary Provident Fund contribution.