BackYou should keep increasing your savings rate every year
You should consider increasing your savings every year to make sure you reach all your future goalsAs far as earning interest is concerned, even if you are not in employment anymore, the EPF account will continue to earn the notified interest rate whether the account is active or dormant
PremiumI am 49 years old and have been investing ₹5,000 each in Mirae Asset Emerging Bluechip, L&T India Value, IDFC Focused Equity, L&T Emerging Business and Motilal Oswal 35 funds since August 2017. My investment horizon is 10 years. Should I continue investing in these funds?
—Dewang Goyal
You are currently investing ₹25,000 per month in five different equity mutual fund schemes. The schemes are spread across large-and-mid-cap, value, multi-cap, multi-cap focused and small-cap categories and are good funds to hold. The funds make for an aggressive portfolio but you do have a long-term horizon.
In the last 12 months, markets have seen much of volatility as well as correction and this has happened across most of the categories and schemes. It is good to understand the rationale why there is an underperformance in the portfolio, if any, and do consider the long-term performance of the schemes before making any major changes in the portfolio.
If you invest ₹25,000 per month for the next 10 years, the principal corpus becomes ₹30 lakh and assuming a growth rate of 15%, the corpus would be close to ₹70 lakh. At 12% growth rate, the corpus will be ₹58 lakh. This is when you have not factored any increase in monthly savings over such a long period. You should consider increasing your savings not only for the goal you are targeting in 10 years but also for your other future goals.
I was working with a telecom company for around two years. I have a Universal Account Number (UAN) account and have transferred my Employees’ Provident Fund (EPF) balance with my previous employer into the new account. The same is reflecting in my new account. From December 2017, I have been unemployed but I have not withdrawn my EPF and my EPF passbook is not updated for the last financial year. How long can I keep earning interest on my EPF account? I am 48 years old and I do not require the corpus for at least a couple of years. Should I stay invested or withdraw? Please suggest.
—Mukesh
It is good to get your EPF account updated. At the same time, using your UAN number, you can access your account and the updated EPF statement online. If you are not able to do so, you should follow up with the EPFO and register your grievance by quoting your UAN number.
As far as earning interest is concerned, even if you are not in employment anymore, the account will continue to earn the notified interest rate whether the account is active or dormant. There were indeed restrictions imposed on the account, which became dormant with effect from April 2011. The accounts where there was no contribution for a continuous period of 36 months were called dormant accounts and the interest accumulation was stopped in these accounts. However, this restriction was lifted from April 2016 and such dormant accounts started earning interest till the account holder attains the age of 58 years, the age of retirement.
At the same time, the interest accrued in the EPF account post resignation is subject to tax as per your marginal rate of tax on an accrual basis. This can help you decide whether you should continue holding your EPF corpus or withdraw the same based on your overall investment plan and risk profile.
Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com
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