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 on / By M. Pattabiraman Twitter: @pattufreefincal / 4 Comments

Published: 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 if you found this useful
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video! ⇐ More than 700 investors and advisors use this!
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 2600 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 600 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!   
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all 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, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. 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 for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored three print books, You can be rich too with goal-based investing (CNBC TV18), Gamechanger, Chinchu Gets a Superpower! and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. 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 from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only 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
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 meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
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 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

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, 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 199 (instant download)
Free android apps