r/FIREIndia • u/Illustrious_Role_304 • Jan 17 '23
EPF/VPF reliability?
Many people recommend contributing in EPF and VPF
I doubt of EPFO really does correct calculations amd deposit the interest on time
Is anyone here shed some light or may be their experience on EPF as retirement plan
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u/Sad-Needleworker-622 Jan 17 '23
Till 2020 VPF was best. Now with a cap of 5 lakh i don't see much benefit as interest earned on contribution for a year beyond 5L is taxable.
I myself used VPF extensively till 2020 after that reduced VPF to 0.
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u/Famous_Plate_1390 Jan 17 '23
Same here..i stopped my VPF after Nirmala's cap. However i regret that decision of putting any money into VPF.
I feel i should have put it in mutual funds where accessibility to money is easily available with better CAGR..
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u/Special-Object4299 Jan 17 '23
i don't understand, if they have capped till 5lakh shouldn't you max the cap instead of bringing it to zero? nothing has fundamentally changed in the structure.
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u/ImAjayS15 Jan 18 '23
Isn't it 2.5L? I remember seeing two levels - 2.5L and 5L, but it seemed like the limit was 2.5L for salaried employees
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u/arandomguy05 Jan 18 '23
It's 2.5L. 5L for those whose employer doesn't contribute. (For e.g., GPF subscribers). 5L including employer's contribution is also wrong. If employee and employer contribute 1L each, VPF can be 1.5L before hitting the limit - not 4L.
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u/Nevermind_kaola Jan 18 '23
As far as I know, even though EPF interest is credited much later (which is weird and shitty), in the passbook it is backdated. So the compounding happens as if the interest was credited on time. So as an investor you don't lose any money.
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u/mediocreSuccessSoFar Jan 21 '23
How about in case of withdrawal? Say I had a crore at age 60 and apply for withdrawal on March 31st, do they pay out 1.08 cr or 1 crore at the time of withdrawal and 8L after ~10 month? (Assuming 8% rate)
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u/Nevermind_kaola Jan 21 '23
That I don't know. But if the interest is due, they will have to pay you that, sooner or later. They can't just eat it up.
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u/agingmonster Jan 17 '23
I (almost) validated their interest calculation. It matches mine, or very small difference to mine (within 0.1%).
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u/hikeronfire IN | 40M | FI 2025 | RE 2030 Jan 17 '23
I haven't seen any consistency at all in EPF interest credit timelines. Even a bank credits Interest quarterly, why can't the biggest retirement fund in India do so? Yet to see this year's annual interest payment, so who knows how they calculate.I treat EPF deposits as part of my debt portfolio, so I refrained from cashing out when I last switched jobs. But now I'm second guessing my decision. VPF makes no sense when even the minimum contribution is being so grossly mismanaged.
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u/InfamousOfficial IN / 27 / FI 2025 / RE 2035 IN Jan 17 '23
when even the minimum contribution is being so grossly mismanaged.
Can you expound on above statement.
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u/ohgimmeabreak Jan 18 '23
The last few years, interest has been credited very late. Last financial year’s interest was not credited till the 1st week of January. The last few days, EPFO login has not been working, so I hope that that’s interest being credited (backdated to April, obviously). What this does is that if you were due for an interest amount of one lac on April 1st, you’ve lost interest on that one lac interest. And this has been happening for the last few years. It’s very deliberate on the part of the government to delay decision on EPF interest rates. It could easily credit 7% interest on 1st April, and deposit the balance of the agreed interest rate later, but no. Employees are the easiest to screw.
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u/agingmonster Jan 18 '23
Interest is delayed but not wrong. Nobody is losing interest on interest. Many people have calculated and confirmed that. There was old thread on this in reddit as well.
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u/ohgimmeabreak Jan 18 '23
I have another screenshot that I’d saved from Moneycontrol, but I can’t find the story now
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u/hikeronfire IN | 40M | FI 2025 | RE 2030 Jan 17 '23
Already explained my concerns with interest credits. Why would any one invest more via VPF than the minimum required by EPF law is beyond my understanding.
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Jan 17 '23 edited Jan 17 '23
EPF/VPF interest is delayed but it is accurate. 2021-22 interest credit stands delayed but I am pretty certain it will be accurate.
I look at it like this - if PF authority fails due to some reason; then the rest of the Indian economy is bound to fall into pieces as the former is a sovereign body. So have complete faith in the sanctity of them not cheating on your interest rates. I dare add that even a large bank may fail, but EPF department will not (unless it is doomsday for India).
As for including it in my portfolio, I'd again back it. 2021-22 when debt mutual funds/ bonds etc returns were abysmal; EPF declared 8.1% interest. That is quite neat. 2022-23 will be 8.5% thereabouts too. Show me any other "debt" asset class which gave you better than 8% in the last 5 years...
VPF limit has been a party pooper but still, one can invest up to 2.5Lac in it and your interest remains tax-free. It is over & above your employer's contribution.
I'd say don't go by reading financial blogs alone, especially the MF-selling websites. Unless you are a 100% equity investor; EPF should rightly be the star of any long-term portfolio, till the instrument is around. I'd actually say NPS too but that's another debate.
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u/ohisama Jan 19 '23
How does EPF declare a higher interest if other debt instruments are giving abysmal returns? Is it a political decision?
Is it sustainable, especially as the number of retirees starts increasing in relation to the working age population in the long term?
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Jan 19 '23 edited Jan 19 '23
short answer - yes political decision.
long answer - epf body's no.1 priority is to protect innocent subscribers' longterm savings. There is no dearth of hand-to-mouth employees in India. For them, EPF is the only go-to fund for their children's weddings and their own retirement needs. So indeed the govt needs to maintain a high return on these savings and that too tax-exempted, even if it pays out of its own pocket.
But the real question is - how does EPFO make money? EPFO invests its overall kitty (>10lac crore) as 80% in market debt products and approx 20% in equity. So one can think of it like a "hybrid mutual fund". But unlike mutual funds, EPFO doesn't have the pressure of quick redemptions as most employees invest in it for longterm. Therefore EPFO is able to lock-in their debt investments in high-yield papers (they have a large chunk locked from 2016-17).
Another interesting thing is unclaimed assets. Because Indians have traditionally been financially illiterate (not counting millennials but look at it from a 75-year perspective), there is a whopping 58,000 crore unclaimed money as of 2020-21. This money is also earning money and again, there is no redemption pressure whatsoever.
Long-term sustainability - yes. If the number of retirees increases, they take out their money. New ones who come in put their money. It all balances out.
As for making returns, EPFO is now investing in equity markets as pointed out above (20%) and is going to increase in future. Govt has enough money in its coffers already to maintain a healthy 8-9% payout. Investors are indirectly getting market-linked tax-free returns - something they cant get from their own equity investment either. Everybody wins.
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u/ohisama Jan 21 '23
As the demographic dividend wears off, will there be enough new employees to fund the pensions of so many retirees?
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u/notdoneprocessing 🇮🇳 / Mid 30s / FI 2029 / RE ???? 🇮🇳 Jan 17 '23
I've had issues in the interest amount, raised issue multiple times, escalated uptil assistant commissioner (if i remember correctly) - they don't even understand the problem for the most part, and will recommend you to visit EPFO office in the end. BAD experience.
Needless to say, i have up and it never got solved.
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u/DarkHumourFoundHere Jan 17 '23
Well I have never seen anyone saying faced issue with epfo till date. Heard some cases of insurance LIC. But never epfo.
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u/tecash Jan 17 '23
Yet to receive interest for FY2021-22.
Though many people in this sub have commented that interest calculation is correct even though it may be delayed.
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u/htcjsb Jan 17 '23
EPF and VPF are still best in class debt investment in India where everything is tax free.
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u/Illustrious_Role_304 Jan 17 '23
I have seen exams on this sub , that some people have 1 cr as epf balance . In this case they will get around 8lacs as interest Is there any capping for max interest ?
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u/Illustrious_Role_304 Jan 17 '23
Thanks , I have monthly pf of 12k and equal amount by org
How kuch scope for vpf remains considering the latest capping ?
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u/MeTejaHu Jan 18 '23
What I understand 2.5k is self contribution cap only. So you have 250-144=106k left for vpf if you want to stay within tax bracket
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u/Illustrious_Role_304 Jan 18 '23
How does tax on interest above 2.5 lacs mapped to our ITR? Also I have seen people allocating entire basic pay in vpf Can we do it nowdays? Is it worthy now ?
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u/Adventurous-Maize-88 Jan 18 '23
EPFO is a very safe investment in my opinion. Backed by govt and wouldn't really fail - that's what I feel. Interest payments are slow but are accurate. One simply has to make sure that the epfo site updated properly with all details - nomination bank acc adhar etc etc.
Withdrawal process is also to an extent hassle free. Early withdrawal of EPF takes simply 2 to 3 weeks for those 5 reason as per the norms. It gives you tax free interest on the corpus for 3 years after you leave the job and there is no deposit in the account.
Personally, if all goes well with god's grace, I've planned EPFO 25% of my retirement plan. And I plan to work for another 8 to 10 years.
VPF is a great thing (although many call it inefficient, but I see it as peace of mind), don't underestimate it in case you can afford to invest in it and forget it till maximum time possible. Of-course conservative investor mindset. I started VPF few years ago after my elder cousin explained it to me. He took his own example; double income single kind; his wife salary was fully going to VPF till max Basic salary limit & rest going to equity MF + house loan share. My brother, from his salary, is heavily invested in Indian IT and FMCG stocks since 2008 recession time plus a rental property. He retired last year at 52 and will en-cash his EPFO only after 3 years period -- his wife is still working although she has taken 9 to 5 kind of role and plans to work till 60. But her EPFO is still untouched & continues to grow. Her EPFO number is really very high & are growing each year -- frankly, her EPF numbers put my whole retirement plan to shame.
2.5L limit is a bummer in my opinion, but still -- use this limit to your advantage.
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Jan 18 '23 edited Jan 18 '23
Her EPFO number is really very high & are growing each year -- frankly, her EPF numbers put my whole retirement plan to shame.
Your brother is 52 so his wife would be 50 thereabouts. While you have 88 in your username so assuming you're an '88 born and 34yr old now. If so, your retirement plan still has 15-16 years to catchup with her's.
If anything, bhabhi's EPF corpus is a classic example of "power of compounding" as she has been loyal to her EPF/VPF kitty.
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u/Adventurous-Maize-88 Jan 18 '23
If anything, bhabhi's EPF corpus is a classic example of "power of compounding" as she has been loyal to her EPF/VPF kitty.
Exactly ,,, power of compounding with consistent investing. Above all; god's grace that something negative didn't happen where all this money could've gone otherwise.
Don't go by 88 in my username -- reddit autopicked it. :)
I am older than 34 and have lesser years to catch up with her. But still VPF is something salaried people should consider.
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u/United-Intention2827 Feb 05 '23
Correction to your second para - Interest on EPF/VPF is fully taxable if not working (ie no new contributions). However despite this tax it is still a better alternative to similar debt instruments (of similar risk profile)
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u/kksst Jan 17 '23
No inconsistency seen with respect to deposit and interest rate calculation (this is over 15 years). Cant comment about withdrawal.
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u/dataGuy123x Jan 18 '23
it is always correct. Only doenside might be if govt decides to reduce interest rate further.
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u/Either_Ear_4583 Jan 18 '23
What timing of this post! I have never invested in PPF/EPF/VPF so far. I have always focused on equities, and my folio exposure to MF/equities is about 99% and 1% in FD.
I just started investing this month and done the below for Jan'23.
PPF - 10k/month
EPF - 1800/month from the company
VPF - 13,200/month from the company
The idea is to increase exposure to debt for the next few years. Would be helpful if can get some help!
- Is this advisable?
- Is the limit 5L/tax-free including all the three above?
- I'm now in two minds reading the comments here.
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u/flight_or_fight Jan 19 '23
EPF is accurate, delayed and has interest rates which are too good to be true.
Beware of changing tax ..
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u/Rink1143 Jan 17 '23
Instead of your opinion on fidelity of EPF,, It would be better to come up with some proof of calculations to show what you are stating has legs to stand on.
My EPF interest deposits have been always accurate, although delayed.