Employee Provident Fund (EPF) and Fixed Deposit Account both provide security and growth of funds, but you can maximize the returns on both of them by leveraging their benefits at the right time.
Let’s understand EPF and FD in detail and how you can plan your investment strategy around them.
Employee Provident Fund (EPF)
EPF is an integral component financial portfolio of your retirement corpus and akin to social security. Both employer and employee contribute 12% of the basic salary and dearness allowance every month. The employer has the discretion to increase the EPF contribution. Some other salient features of EPF are:
- Interest Rate: The prevailing rate of interest on EPF for FY20 is 8.65%. The rates are revised by the government and hence, subject to fluctuations every year.
- Control of Funds: Since EPF is government and employer-managed retirement scheme, you have no control over the investment amount and interest rate.
- Withdrawal/Liquidity: You can withdraw full EPF amount only after the retirement or resignation. Partial withdrawal or loan against provident fund balance is possible only during the active years of employment for child’s education/marriage, home purchase/loans/renovation, medical treatment or calamities.
- Taxation: EPF is eligible for tax deduction under section 80C. However, EPF withdrawal before five continuous years of service is taxable. As per the Union Budget 2020 guidelines, the cumulative upper limit of Rs. 7.5 lakhs and above concerning employer’s contribution towards National Pension Scheme (NPS), PF and superannuation are taxable. This rule is applicable for the AY2021-22.
Fixed Deposit (FD)
Interest Rate: The interest rate on a fixed deposit account varies across banks and NBFCs according to the type of FD and tenure. There are also many FD schemes for senior citizens with a higher interest rate.
Control of Funds: The entire control of FD lies in your hands – you can decide how much to invest, when to invest and where to invest.
Withdrawal/Liquidity: Other than tax-saving FD where there is a lock-in period of five years, regular FDs allow you to encash prematurely at a small penalty rate. You can even avail of a loan against regular FD. FDs have high liquidity.
Taxation: The tax-saving FD is exempted under section 80C up to Rs. 1.5 lakhs in a year. Investors under the annual income bracket less than Rs. 2.5 lakhs can claim TDS exemption by submitting form 15G/15H. For others, FDs are subject to 10% TDS deduction if the interest income exceeds Rs. 40,000 (Rs. 50,000 for senior citizens) in a year.
The best way to maximize your provident fund balance is to invest it in a safe and high-interest yielding fixed deposit account. Apart from bank FDs, you can also consider company FDs as a post-retirement scheme.
Take Bajaj Finance FD for example. It offers both regular and senior citizen FDs with a high and guaranteed interest rate of up to 8.05%. Senior citizens can maximize the returns by claiming TDS exemption and dividing your provident fund balance across multiple deposits with varying interest rates and maturity dates according to your financial goals. You can also avail periodic interest payouts on a monthly/quarterly/half-yearly/yearly basis to earn regular income after retirement.
Your EPF money is quite safe in Bajaj Finance FD because it carries the highest stability ratings from ICRA and CRISIL in the industry. The company is the only NBFC with ‘BBB’ rating from international credit rating agency S&P Global.
FDs are the best and safest option when it comes to investing your EPF.