Home >Money >Personal Finance >Consider investing in multiple AMCs
The interest earned in an EPF account becomes taxable if there is no fresh contribution to the account (Photo: iStock)
The interest earned in an EPF account becomes taxable if there is no fresh contribution to the account (Photo: iStock)

Consider investing in multiple AMCs

A PF account continues to earn interest till your retirement, irrespective of whether or not you are in employment, making most investors continue with the same even if they retire early

I am 53 years old and I lost my job after working there for two-and-a-half years. I have Provident Fund (PF) contributions from three companies spanning 13 years. Will the PF withdrawal now be taxable? Is it advisable to withdraw PF now or should I wait till I attain 58 years age.

—Vijay Bhasin

If the Employees’ Provident Fund (EPF) corpus is withdrawn before the completion of five years of continuous service, it is taxable under the Income-tax Act. During this continuous period, a change of employment is possible, but there should be no gap in PF contributions to avail of the continuous service clause. You changed your employment a few times during the course of 13 years. However, it is not clear if there was a gap in service. Also, EPF from previous employers needs to be transferred to the new employer to avail of the benefit. Subject to the above, the PF taxation will become applicable.

A PF account continues to earn interest till your retirement, irrespective of whether or not you are in employment, making most investors continue with the same even if they retire early. However, the interest earned in an EPF account becomes taxable if there is no fresh contribution to the account. So, once you leave active employment and there is no fresh deposit into your account, the interest earned becomes taxable prospectively.

I have been investing in systematic investment plans (SIPs) of 10,000 via my bank’s asset management company and I have accumulated approximately 5 lakh so far. If, hypothetically, my bank becomes insolvent, will it impact my wealth and will I be able to recover my money?

—Hussain Cementwala

Firstly, what you are saying of a bank becoming insolvent is possible but the probability of this happening is very low. So this should not be a reason of concern for you. At the same time, even if this kind of scenario happens, your bank is only a sponsor and has created a trust, which has further appointed the AMC to run the mutual fund business. The custody of the assets is not held by the bank but by the custodian who is independent of the sponsor; in this case, the sponsor is bank appointed by the trustees. Hence, there are enough safeguards in place to protect an investor.

Also, for the sake of diversification, consider investments in more than one AMC.

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

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePapermint is now on Telegram. Join mint channel in your Telegram and stay updated

Close
×
My Reads Redeem a Gift Card Logout