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Ask an employee about Employees Provident Fund ( EPF) and the most likely answer is that it is a part of their salary to be contributed every month. While employees divert 12 per cent of their basic salary towards EPF, their employers give an equal amount each month. But, this is not all. There are several crucial aspects about EPF that many would not know. For instance, there are two elements to EPF — EPF and Employees Pension Scheme ( EPS). The 12 per cent employee contribution goes to EPF. However, the employer's contribution is divided in 8.33 per cent that goes in EPS, subject to a maximum of ₹ 541 a month. The rest goes to EPF. However, an employee is eligible to earn pension only on attaining 58 years of age, after completing 10 years of service. Or, on having contributed to it for 20 years. In either case, the pensionable service or number of years of contribution are increased by two years. " For instance, one has attained 58 years and contributed for 25 years. Then, the pensionable service will be taken as 27 years. Or, if contributed for 20 years, then it will be considered as 27 years," explains certified financial planner Pankaj Mathpal. Here are some more: Not compulsory for all If you earn more than ₹ 6,500 a month, you can always opt out of contributing towards EPF. Unfortunately, you need to opt out of it at the start of your career. If you have been a part of EPF even once, then you aren't allowed to not contribute. So, new joinees who do not have an EPF account number can ask their employers to not be a part of EPF contribution. Although this will increase your in- hand salary, financial planners are not in favour of taking this route, as EPF is the easiest way of building a retirement corpus, earning a handsome interest income of 8.5 per cent for 2012- 13. Entire corpus can't be withdrawn It is not possible to withdraw the entire EPF corpus even after five years of continued service. This is because there are separate rules for EPS for services up to nine years. Table D of EPS indicates how much can an individual get depending on the year of service in which he quits his job. There is a slab for each completed year, subject to a maximum to ~ 6,500 a month ( see table). Does not earn interest Your EPF account does not earn compounded interest each year on the total monthly contribution. The compounded interest is paid only on the EPF part. The EPS part does not get any interest. Withdrawing EPF during job change illegal According to EPF norms, withdrawing an EPF corpus at the time of switching jobs is illegal. You can only withdraw it if you are not going to join any organisation and two months after quitting. You can transfer the amount once you get a new job. Many people withdraw telling employers that they have been unemployed for two months and later take up a job. But that is incorrect. Can be withdrawn on special occasions While EPF cannot be withdrawn if you are yet to complete five years of service, you can do so on specific occasions. Of course, the withdrawal can only be partial. For instance, you can withdraw from EPF for the marriage or education of your self, children or sibling. If you've completed a minimum of seven years of service, 50 per cent of your contribution can be withdrawn three times in your working life. Similarly, for medical treatment for self or family ( spouse, children, dependent parents), you can get a maximum of six times your salary. You can also withdraw for the purpose of repaying a housing loan for a house owned by you or spouse or jointly by both of you. However, for this, you should have completed at least 10 years of service. Then, you can withdraw up to 36 times your salary. Withdrawing is allowed towards the cost of alterations/ repairs to an existing home owned by you or your spouse or jointly by both of you. You need a minimum service of five years for alterations and 10 years for repairs after the house was built/ bought. You can draw up to 12 times your pay, but just once. However, do not touch the corpus unless in dire need. Allows voluntary contribution You can always invest more than 12 per cent of your basic salary in EPF voluntarily. This extra, as it is coming from the employee side, is invested in EPF and earns interest on it. The employer is not bound to match the extra contribution. It will continue investing up to a maximum of 12 per cent of the employees basic pay. Gives life insurance If your employer does not provide group life insurance cover to its employees, EPF covers the employees with a small cover ( maximum of ₹ 60,000). This comes from the Employees' Deposit Linked Insurance Scheme and such employers have to contribute 0.5 per cent of your monthly basic pay, capped at ₹ 6,500, as premium for your life cover. Mostly, small scale industries' employees get this cover. Companies that already provide life insurance benefits to employees are exempted from this scheme. Contribution to EPF, EPS, EDLI, admin charges Scheme name Employee Employer Employee Provident Fund 12% 3.67% Employees' Pension Scheme 0 8.33% Employees Deposit Linked Insurance 0 0.5% EPF administrative charges 0 1.1% EDLIS administrative charges 0 0.01% Years of Proportion of service wages at exit
Why timing the market can hurt
When is the right time to invest? Similarly, when gold started touching one high after another, many wanted to start investing in it. This query continued each time gold prices inched higher. Most recently, investors wanted to know if they should lower their gold holding after the price started falling.   The answer to all the above questions: think long- term and don't time the market. The latter can hurt badly. These questions largely come up because investors are used to investing based on historic data. While that is important in terms of choosing the right product, past returns of an asset class are no surety of future prospects. That is the main reason why investors sell on troughs ( fear of losing more) and buy on peaks ( greed of gaining more.   Most investors believe they need to know the market movement ( read time the market) to be able to make money. However, ' timing the markets' is defined as buying when the prices hit a bottom and selling when they peak. In reality, the opposite happens.   Why not time the market?   Timing the market leads to taking a lot of risk on your books, There are many big and small factors governing the market movement simultaneously — national, international, political, geo- political and economic. One will never know which event/ factor will lead the market which way. Sometimes, there are clear signals of an uptick but the stock prices fall. Why should one want to ride on unpredictability.   A classic example could be the bull run in stock markets in the pre- 2008 crisis. Many entered the market in December 2007 to take advantage of the soaring stock prices and have not been able to recover their capital till date.   When an investor tries to time the market, the bigger picture is overlooked in favour of short- term profits.   As a result, investors may end up making or exiting investments prematurely or unduly late. Such a short term approach can be detrimental to the long- term gains and can also force wrong investment decisions. Remember it's your time in the market rather than timing the market that determines your success. It is almost impossible to call the peak and bottom with accuracy. Those with ' I sold all my stocks at the right time' tags just got lucky. Do not fall for such claims. Even the new- age systems and algorithms can fall on their face in a widespread bloodbath.   Those who invest or disinvest based on market movements or expected market movements are purely speculating. You can either speculate or accumulate, but never both, say experts. It is very critical to understand that what may work for an institutional/ ultra HNIs ( high networth individuals) may not work for individuals. A large investor is a regular trader who tracks the market in depth.   However, an individual neither has the volume, time nor the market efficiency to do the same. Therefore, following a bigger investor can have negative repercussions.   What should you do?   According to Annual Wealth Creation Study, a study on wealth creating companies conducted by Motilal Oswal Securities in December 2012, investing in equity isn't really about catching the spurt in stock prices but about identifying a company's potential to create value and sticking to the choice in the long run. This underlines the basics — don't try to time markets and invest for the long term, based on company fundamentals.   Follow the systematic investment route. If you have a lump sum, break it into, say, 12 parts, and invest over a period to make the most of different market levels.   This helps make the most over the long term with cost averaging. Ideally, an investment decision is a factor of an investor's risk profile, time horizon and financial goals. It is these three elements that determine the asset allocation an investor needs to follow. Always invest your overall assets appropriately across different asset classes to reduce the risks and earn the most.   Following every short- term trend could harm your portfolio as the asset allocation gets disturbed too frequently. In the attempt to catch the latest trend, you could end up missing the bus on both sides. Consider rebalancing your portfolio periodically but don't confuse it with frequent churning.   Move out of an asset only if there is a genuine need for it. For example, if you are nearing a goal, it makes sense to move to debt from equity.   For risk takers, experimenting on a minuscule part of the portfolio. For instance, if you have invested 50 per cent in equities, you could take risk on up to five per cent of the portfolio. But, not everyone has the expertise and knowledge to do the same. This is especially not advisable to do with the goal- linked part of the portfolio or your future plans will get messed up.

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