DO YOU switch jobs as a lucrative offer comes your way? Most people wonder what to do with their Employees Provident Fund (EPF), whether to withdraw or transfer your PF account.
It should be remembered that your EPF is and should be an integral part of your retirement planning. Your EPF corpus can grow to significant amount, running into crores of rupees, over longer period of time such as 20 to 25 years.
Yet, many resort to withdrawing the balance so accumulated in their PF account. The early withdrawal of PF will dent your retirement corpus and attract taxation as per relevant tax slabs (if withdrawn before five years), besides loss of interest on the amount withdrawn.
Meanwhile, recently The Employees' Provident Fund Organisation (EPFO) has urged the government to bar workers from pulling out their PF balances on changing jobs.
On joining your new job, make sure you transfer your EPF from your previous employer to your new employer. This will ensure continuity to your EPF. As EPF is an excellent investment product unmatched by any other investment product considering the fact that it serves as a mandatory or default investment. It gives an assured interest earning of 8.5 per cent per year, which is compounded every year and is tax free. Continuity of your EPF over period more than five years, including transfer during your job change, will ensure your EPF corpus is tax-free.
Employees Provident Fund is an good fixed income option and offers attractive returns when compared with most other instruments. The choice of withdrawal or a transfer should depend on one's liquidity position. But, people with good liquidity should use provident fund as a part of longterm retirement planning, given the assured and attractive returns.
Compounding of capital works best if the capital is left uninterrupted to compound every year. By constantly withdrawing from your retiral accounts such as PF and EPF, you are depleting the funds in these accounts from snowballing into a big amount that can fund your retirement in the twilight of your life. Its best if these funds are left untouched unless you are left with no other practical option to raise funds.
