Investor’s Query: I am contributing every month funds towards Employee Provident Fund (EPF) with my company. Can I account my monthly contribution towards EPF towards my Retirement Corpus?
Mr. Gerard Colaco: I never take Employee Provident Fund(EPF) into account when I prepare financial plans. For me, financial planning is what an individual can do with her / hisNET surplus, that is income after all deductions and taxes, from which normal monthly expenditure is then further deducted.
EPF is not available to non-employees. Even where employees are concerned, not all employees are under EPF. So I treat EPF as a hidden reserve that should come as a pleasant surprise as an additional financial resource in retirement. Ditto for pensions.
Please note however that I do not consider EPF to be unimportant. My advice to all salaried people who are eligible for EPF is to max out on EPF contributions at least to the point where there is a matching contribution by the employer. If this is done, probably no investment including equity can match the returns on EPF.
For example if the EPF interest rate is 9% p.a. with a matching contribution by the employer, it is as if the employee is earning 18% p.a. This is higher than the average long-term equity returns in India. But I would certainly not depend upon EPF to ensure my comfortable retirement. It is my financial plan that should do so.
Like I said, the EPF must be a pleasant surprise and if it is large enough, it can contribute to either a higher standard of living in retirement and/or better legacies.