A reader says, “My PPF has matured. I presently hold about 45 % equity, with the rest in debt, and I am looking to increase my equity exposure as I have about 17 years to retire. I was thinking of withdrawing the ppf, which is currently earning tax-free returns of 7.1% and moving that to a hybrid or equity fund. What are your thoughts?”
Some general considerations first. Over the years, I have seen some extreme suggestions on what to do with a matured PPF account. The most popular response (by an older audience) is never to touch the PPF corpus and to renew it for five years for life. This is more due to the tax-free fixed returns from PPF. Also see: Public Provident Fund (PPF) Extension Rules Upon Maturity
A less popular and market-dependent suggestion from a younger audience is to shift the PPF to equity or hybrid mutual funds, as “one can easily earn more returns.”
I think both approaches are incorrect. To make a balanced decision, one must have a goal-based financial plan. That is the only way we can have the right investing priorities.
Many investors have a highly debt-heavy portfolio dominated by EPF. If someone with 80% fixed income asked me this question, I would recommend shifting from PPF to equity as long as there are at least 10-15 years to retire.
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In the present case, it is heartening that the reader understands the importance of asset allocation. His current asset allocation already has 45% equity. It is enough if the equity exposure is increased to 50%. In any case, after a few years at this level, the equity exposure must be systematically reduced to combat the sequence of returns risk reaching the desired level at retirement. One can use the freefincal robo advisor tool to map out the asset allocation and post-retirement strategy. For example, see Retirement plan review: Am I on track to retire by 50?
Therefore, we recommend extending the PPF for five more years and increasing the equity allocation to 5% in the next 2-3 years via higher investments.