Going Beyond EPF
Business Today|May 5, 2019
Going Beyond EPF

Diversify the portfolio while making plans to financially secure life after retirement.

Renu Yadav

Ripudaman Singh, 41, a professional working in the e-commerce industry, plans to retire at the age of 60. Till about four years back, he was relying solely on his employees’ provident fund (EPF) for retirement savings. Singh got a rude shock when his financial planner told him that he won’t be able to afford his current lifestyle during the sunset years with only the EPF money.

There are many people like Ripudaman who rely only on their provident fund for retirement expenses. EPF is a tax-efficient, long-term investment product but contributions to it are limited — 12 per cent of the basic salary and matching employer contribution. Part of the employer’s contribution (which is 8.3 per cent, generally subject to a maximum of 1,250) goes towards employees’ pension scheme. Frequent withdrawal is also common, which brings down the corpus.

EPF is predominantly a debt instrument. It was allowed to invest in equity only recently, and the exposure is limited to 15 per cent. It is difficult for a debt-heavy instrument to generate inflation-beating returns.

Asset Allocation

Once you realise that EPF alone will not be enough to meet your retirement needs, you need to start additional investments, whose returns will depend on the asset allocation (see: Final Figure). So, before exploring the instruments, decide on how much you need to invest in equity, debt or any other asset. “Asset allocation can be decided after considering expenses and goals after retirement, risk profile, liquidity, income needs, time to goal, taxation, etc,” says Suresh Sadagopan, Founder, Ladder7 Financial Advisories. If you are not able to ascertain your asset allocation, take the help of an adviser.

Here are a few options you can use for retirement planning.

Voluntary Provident Fund: You can enhance your EPF contributions to over and above the mandatory 12 per cent. For this you can open a voluntary provident fund account. The employer is not obliged to contribute to this account. While this investment avenue is relatively stable, do bear in mind that returns are low, so you may need heavy additional investments.


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May 5, 2019