The Employees’ Provident Fund Organisation (EPFO) is set to invest up to 5% of its incremental corpus in the equity market. The investment will be done through exchange-traded funds (ETFs), most likely in a basket of Nifty stocks. The details are expected soon.
The EEE tax status means the contribution, the accumulation and the withdrawal amounts are all exempt from tax.
“It’s a beginning and will prove useful in the long run considering that there’s no social security system in the country,” said Hemant Rustagi, CEO, WiseInvest Advisors. “Over a period of time when you see your EPF portfolio growing, more and more investors may be encouraged to look at equity in other parts of their portfolio.”
According to Rustagi, assuming 15% returns in equities, the 5% EPF portion could make incremental gains of 0.35% in a year over the existing EPF investments. Over a long period of, say, 30 years, this will lead to gains of about 13-15%. “This could significantly boost the EPF corpus for young individuals,” said Rustagi.
Rustagi feels that one should not put money through the VPF just because the EPF may earn higher returns now. According to him, investors should combine EPF with other investment options such as equity-diversified funds, retirement plans from mutual funds, public provident fund and NPS to plan for retirement.