Your EPF account number does not change if you stop contributing to it
I had contributed to Employees’ Provident Fund (EPF) for 1.5 years and then stopped making contributions. I want to start again, working in the same company. My basic income has not changed in all these years. Can I start contributions in the same account again?
First, you should not have stopped contribution to the EPF. And in case it was necessary to stop contribution, it is good you are deciding to restart the same. It is a good investment option for investors who want to have a long-term secured tax-free corpus with compounding benefits. It helps you to create a retirement corpus and is also a backup in emergencies as it offers partial withdrawals for specific needs, such as house, marriage, education and medical reasons. Also, your EPF number will not change and will continue to remain the same. You can also ensure that you have an online access to EPF which enables you to check your EPF balance online. And to catch up on the period that you have lost in saving, you can also opt to increase the savings if your cash flow permits by opting for a higher deduction, i.e., voluntary provident fund deduction.
I am 36 years old and work in a private financial company. I earn Rs1.2 lakh a month and have monthly expense of Rs50,000. My aims are to secure my 6-year-old child’s education as well as my post-retirement life. I have savings of about Rs5 lakh. Recently I have started investing through SIPs in SBI Blue-chip Fund - Direct Plan (Rs5,000), Birla Sun Life Frontline Equity Fund - Direct Plan (Rs2,000), Mirae Asset Emerging Blue-chip Fund - Direct Plan (Rs3,500), Birla Sun Life Equity Fund - Direct Plan (Rs3,500), UTI Gilt Advantage Long-term Plan - Direct Plan (Rs5,000). I also invest Rs4,000 in NPS through SBI Pension Funds Pvt. Ltd. For my child, I have been saving Rs10,000 per month in fixed deposits for the last 2 years. I have also bought an insurance policy for my child, which will give nearly Rs23 lakh at the age of 18. I have medical insurance cover of Rs10 lakh. I also need to buy a home. As I am very late to start my financial planning, please suggest or correct my way forward.
—Name withheld on request
It is good that you are keen on creating a long-term corpus for your retirement as well as ensuring an education kitty for your child, in addition to the need of buying a house. You have a good savings potential. But you are not saving to your ability. You can save around Rs70, 000 per month but your current saving in SIP, NPS and bank fixed deposits are a total of Rs33,000 per month only. And even if you add the insurance premiums including health insurance premium, you are still short of the expected savings. And as you have rightly said, you are a little late in saving and hence you should ensure that you save to the best of your ability. The good part is that all your goals are long term and hence you can consider equity as an asset class for the long term (assuming housing goal also is long term) and subject to your risk profile. And while you have taken a health insurance policy, life insurance in the form of term plan is what you should consider: the sum assured should be six to eight times your annual income or on the basis of your financial goals. And for the existing insurance policy, it is good to calculate the CAGR (compounded annualised growth rate). Don’t look at the absolute numbers of Rs23 lakh maturity value and feel good about it, as the same is the future maturity value 12 years from now and hence the inflation factor also needs to be factored in. If the CAGR return delivered by the policy is as good as other investment options, only then consider the same; else consider alternative options and if it requires the policy to be surrendered, so be it.
Your investment needs to grow with inflation-adjusted return as a benchmark. So from the current set of investments, fixed deposits will not remain a good option if it is meant for the long term. Also, you have picked up good mutual funds but gilt fund may not remain a good strategy for long-term investment. Instead, you can consider dynamic bond funds and let the fund manager take the call on the interest rate movements. And for the remaining amount to be increased in savings, increase your SIP book and increase the exposure in your existing funds.
Surya Bhatia is managing partner at Asset Managers.
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