Tuesday, October 23, 2018

Why PF?

Why to Invest in PF ?

To be frank, most of us, especially the salaried, PF gets done by the company where you work. Government has now made it compulsory, for companies to provide Provident Fund  for all employees.

The good part about PF, is that one doesn't have to do it manually. Its mostly deducted from your salary and invested in your PF account.  Normally, its 12% of your basic component which you invest and 10% is paid by the Company. The best part of this investment is the Interest Rate and the power of compounding which acts on this investment

Even if your Basic Salary is 15,000/- INR, then your PF will be 1800/- from your side and 1500/- from the company, each month. That adds up to 3300/- per month. Though your salary would increase every year, I will still consider the same amount for 40 years of your working life and see how it adds up.

Use a compound Interest Calculator and you will realise that the amount comes to 10,657,413/- which is more than 1 crore. Its but obvious that everyone's salary will increase with time and hence the amount which gets added into the PF account will increase every year and hence you can expect a good return during retirement.
Please make sure to check your PF accrued amount from the PF website, where the passbook is updated in a very detailed manner.

Apart from this PF, there is another instrument, which is Public Provident Fund, which one can invest apart from PF. You will need to open a PF account in one of the Banks, I would suggest SBI. You can invest, upto 1,50,000/- each year and all of this can be used against Tax Deductions under Section 80ccc.
The point to be noted here is that , investment in PPF gives you benefit during investment. There is no Tax applicable on the accrued interest and also, no Tax applicable, when you withdraw the money. Thats a huge bonus. Hence in most of my investment talks , I would strong advise investing in PPF for your retirement planning.

However, just like PF, this amount cannot be easily withdrawn. Only after 7 years, you can take a loan against your PPF account. And some part of the money can be withdrawn for any emergency purposes, which are listed.

Hope you will take up the right step in investing and start investing in PF . Thanks for reading.