Last Updated on March 25, 2022 at 7:54 am
The reduction in the EPF interest rate from 8.5% to 8.1% for FY 2021-2022 is a wake-up call for the retail investor. Particularly the young earner. The “EPF rate is still higher than other instruments” argument is of little use for most investors.
As discussed several times before, the fiscal prudence of EPFO is far from optimal and that is putting it gently. See: Higher EPS Pension: Can EPFO pay Higher Pensions or will it go bust?
Every year it defaults on interest rate payments. The March 31st payment is honoured only in Nov or Dec. due to lack of funds. See: Delay in EPF interest payment: Is there a loss to subscribers? The only reason we accept this is because “EPF = govt”. We assume govt cannot default on their debt although it happens again and again in history!
The EPF rate reduction is a long overdue eventuality. There is simply not enough money to sustain rates much higher than current long term bond yields. Last year, we saw a fleeting glimpse of what the PPF rate ought to be (may as well become a reality in the next few days). This is a tragedy only for those who buried their head under the sand and hope the govt will save them! See: The govt is not going to help us or save us! We have to do that ourselves!
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
What should investors do?
- Get rid of the resignatory “EPF rate is still the highest compared to other instruments” attitude and look at your asset allocation.
- For those who are on the right side of 40, there is still one last chance to considerably increase equity allocation for retirement. Naturally, this has to be done while being aware of risks, but it has to be done. The risk associated with an EPF heavy portfolio is much higher than equity volatility.
- For those who are less than 50, there is still some time left to have a crack at equity to a small extent.
- Do not voluntarily invest more in PF (VPF) unless you have the desired equity allocation in place.
- For some inspiration see: Why I redeemed from EPF to invest in Equity MFs.
But inflation is only 6% or so today; I expect the EPF rate to be always higher as it is an “election issue”
The inflation rate published by the govt does not reflect the ground reality. Particularly those associated with amenities and services like hospitalisation, travel, hospitality, gadgets etc. So if we wish to maintain our health and lifestyle after retirement, two aspects are essential: (1) We need to invest a lot more than the mandatory EPF deduction and (2) Our overall portfolio should outperform EPF after taxes.
We don’t need to be visionary and predict change before it happens for success. But when we see change happening and do not react, we can blame no one but ourselves.
There is no point cribbing over lower interest rates. Hard as it may be to digest, it is a sign of our economy flourishing. See FAQ: How inflation affects our ability to manage money. These are instances of life telling us to wake up and smell the coffee. If we don’t take the necessary action, only the cribbing and whinging shall remain.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter with the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & it's content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)