Should I withdraw from EPF and invest in equity now?

Should you take advantage of EPF advance announced in view of the lockdown and shift it to equity? A look at who should consider this.

Published: April 8, 2020 at 11:00 am

Last Updated on April 8, 2020 at 11:00 am

The Employees Provident Fund scheme was amended on March 28th 2020 to include a non-refundable advance (tax-free) advance in view of the lockdown across the country. With the stock market in the middle of a crash, can this advance be used to invest in equity now? Who can do so and who should not. A discussion.

The EPFO has released an excellent FAQ on the subject. The advance is tax-free and can be obtained without any documentation. Follow these steps to find out how much can be taken out.

One: Compute (monthly basic + DA) x 3. Two: Compute 75% of EPF account balance. Three:  Your eligible balance is the lower of the two numbers.

Should I withdraw from EPF and invest in equity now? The answer is not a simple yes or no. It depends on your motive, your asset allocation and age.

Many would find the very thought of withdrawing from EPF to invest in equity as a sin! The idea of interrupting guaranteed true, tax-free compounding in favour of stock market uncertainty is unacceptable to many. If you are one of them, then the rest of the article will not be of much use to you.  I am expecting strong disagreement in the comments!

If you wish to withdraw from EPF only because the “stock market is down”  and you wish to profit when it moves up, then I would recommend that you do not. Your EPF deserves much better respect than such short-term thinking.

If you are above 50 years of age, then regardless of your asset allocation, do not shift money from EPF to equity.

If your retirement is several years away and if you are capable of judging your investment at the portfolio level, that is, you have a target asset allocation, track changes in asset allocation and understand the importance of portfolio rebalacing, then yes, you can take advantage of this EPF advance and increase your equity exposure. The EPF advance may or may not help you achieve your target equity allocation, but for what it is worth this is a good opportunity to add some funds into equity.

If your retirement is several years away and if you have a debt-heavy portfolio and you are capable appreciating asset allocation and can take decisions without regret this is an opportunity for you to increase equity levels.

What the risks? The EPFO is already flooded with advance applications. So it could take days and days for the advance to hit your account! The market could recover by then leaving you filled with regret!

It would still be good to increase equity exposure if your asset allocation has room for it, but are you capable of looking at it that way? Regret has no place in portfolio management.

The market could fall further after you add the EPF advance. Can you handle that? Your spouse or parents might criticise you. Can you look at your plan then and reassure yourself that you have done the right thing?

Is it morally correct to do this? It is your money and the govt is allowed a no-questions-asked withdrawal for those affected by the lockdown. Is your equity portfolio not affected by the lockdown? Would it not be affected in future?

As long as you have a plan, as long as you know what you are doing and most importantly can live with your decisions, shifting money from EPF to equity is not a terrible idea. The question is, do you have a plan in place?

 

Do share this article with your friends using the buttons below.
Use this button to add freefincal.com as a preferred source of personal finance on Google News
google preferred source button
Click to add freefincal as a Google preferred source

Use our Robo-advisory Tool to create a complete financial plan! More than 3,000 investors and advisors use this!  Use the discount code: robo25 for a 20% discount. Plan your retirement (early, normal, before, and after), as well as non-recurring financial goals (such as child education) and recurring financial goals (like holidays and appliance purchases). The tool would help anyone aged 18 to 80 plan for their retirement, as well as six other non-recurring financial goals and four recurring financial goals, with a detailed cash flow summary.
🔥You can also avail massive discounts on our courses and the freefincal investor circle! 🔥& join our community of 8000+ users!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds, and ETF screeners, as well as momentum and low-volatility stock screeners.

You can follow our articles on Google News

Follow Freefincal on Google News
Follow Freefincal on Google News

We have over 1,000 videos on YouTube!

Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal YouTube Channel.

Join our WhatsApp Channel

Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • 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 using the form below.
  • Hit 'reply' to any email from us! We do not offer personalised investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)


About The Author

Pattabiraman editor freefincalDr 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 13 years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), 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, AUM-independent investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 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 the market condition!! 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.
Increase your income by getting people to pay for your skills! More than 800 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 seeking more clients through online visibility, or a salaried individual looking for a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you. (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. The narrative revolves around what he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
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 a side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you 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 & its content policy. Freefincal is a News Media organisation 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: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is designed to help you ask the right questions and find the correct answers. Additionally, it comes with nine online calculators, allowing you to create custom solutions tailored to your lifestyle. Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is designed for young earners to get their basics right from the start! 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

Travel-Training-Kit-Cover-new This is an in-depth exploration of vacation planning, including finding affordable flights, budget accommodations, and practical travel tips. It also examines the benefits of travelling slowly, both financially and psychologically, with links to relevant web pages and guidance at every step. Get the PDF for Rs 300 (instant download)