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Photo: iStock

Don't set unrealistic financial targets or take undue risks to achieve them

Your EPF account continues to earn interest even if there is no fresh contribution. However, the interest earned post fresh contributions is taxable on an accrual basis and is to be added as part of your taxable income

I am 29. I want to invest 8,000 every month in Mirae Emerging Bluechip and Axis Focused 25. I will be investing in growth options through direct plans. My goal is to make a corpus of 10 lakh in five years.

—Gowtham

The funds selected are good. Both the schemes Mirae Asset Emerging Blue Chip (large-and-mid-cap category) and Axis Focused 25 (focused category) have been consistent and top performing schemes.

Investing 8, 000 per month for five years will lead to a principal accumulation of 4.80 lakh. Assuming an average earnings rate of 10% the cumulative value will be 6.2 lakh, and it will be 6.6 lakh at 12%. To achieve the desired amount of 10 lakh, the corpus needs to grow at an average rate of more than 25%. It is advisable not to target numbers which are not achievable or will make you take undue risks which can act contrarian to the growth.

Instead try to increase your savings on the basis of increase in your income or defer the investment horizon from five to seven years with the same savings rate, assuming an average earning rate of 12%.

I quit my job in India and moved overseas for a job. I have an Employees’ Provident Fund (EPF) account, which is 10 years old. The money is not yet withdrawn. What will happen if I do not withdraw the money? Also, if I want to withdraw it after five years or so, how do I go about it?

—Name withheld on request

Your EPF account continues to earn interest even if there is no fresh contribution. However, the interest earned post fresh contributions is taxable on an accrual basis and is to be added as part of your taxable income. You can hold your PF withdrawal till your retirement age in India, post which you need to withdraw. In case you have completed a continuous period of service for a period of five years with your employer in India, then the corpus at the time of leaving the employment will not attract any taxes and only the additional interest will be taxable income on an accrual basis at the time of withdrawal.

Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com

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