Last Updated on August 30, 2021
A newspaper knows how to get your attention! The economic times carried an article yesterday titled, “EPFO may have ruined your retirement plans. Here’s how”. For its standards, the article makes the sensible conclusion that young people should invest enough in equity.
The subject of the article is the following:
EPFO will now invest 5% in equity. Had it invested more (a lot more) and lot earlier, retirees would have ended up with a larger corpus. So the group referenced in the title are those who have retired or those close to retiring.
The national pension scheme (NPS) allows individuals and corporate employees to invest up to 50% in equity and mandatorily(!) invests 15% in equity for govt. employees.
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
A small percentage allocation (5% or even 15%) will not make a big impact on the corpus, as shown by the economic times article.
Should a pension fund or retirement plan (mf based) contain significant amounts of equity? My answer would be no. The investor should invest in equity separately independent of such products.
Here is why I think so:
1. Pension products are typically inflexible in which an employee stays invested for many years. If the pension product has equity exposure, it is not a smart idea to let the same management handle it for many years, if not decades. Would you assume that the mutual fund or stock you invest in will perform well and not change it at all, no matter what?
2. Pension products can be taxed in a different way. Take NPS for instance. The 50% equity exposure means very little because, the gains as well the amount invested will be taxed per slab upon redemption. Had you chosen to invest in equity separately, there is no tax on the amount invested and the long-term gains are tax-free. Yes, this is as per current law which can change anytime. Will in you invest in NPS (esp. to get the additional 50,000 deduction) in the hope that tax laws will change!! Read why you should not waste that 50,000 in NPS
Yes, something like the reliance retirement fund can help here, but why marry into the same fund until retirement? The amc wants you to do just that! Read more about the fund here
Why mess up a pension product with equity in it? Let it remain a pure debt product so that it serves as a benchmark for you to seek risk-premium elsewhere independently without shackles.
Let us treat the mandatory pension product as just one component in our retirement portfolio and not the only component.
EPFO did not ruin anyone’s retirement plans. The retirees did it themselves by not recognising the risk of inflation.
Reference: The ET article:
http://economictimes.indiatimes.com/epfo-may-have-ruined-your-retirement-plans-heres-how/articleshowsp/47654703.cms
######
Register for Hyderabad Investor Workshop – June28th, 2015
🔥Enjoy massive discounts on our courses and robo-advisory tool! 🔥
Use our Robo-advisory Excel Tool for a start-to-finish financial plan! ⇐ More than 1000 investors and advisors use this!
New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
- Follow us on Google News.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Join our YouTube Community and explore more than 1000 videos!
- Have a question? Subscribe to our newsletter with this form.
- 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.
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!
Explore the site! Search among our 2000+ articles for information and insight!
About The Author

Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 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 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 you buy the new 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 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 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
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Your Ultimate Guide to Travel
