Now Get A Share Of Your PF Contribution In ETF Units
Nov 27, 2017

Author: PersonalFN Content & Research Team

PF Contribution The Employees’ Provident Fund——a publicly managed old-age income security scheme——invests upto 15% of its corpus in equities. However, currently, the benefits of equity investments neither get reflected in the interest rate calculation nor in the subscriber’s account?

Before you make a bee line to protest, the good news is that this scenario is going to change soon.

What is the reason?

Employees’ Provident Fund Organisation (EPFO) has recently modified its accounting policy. As a result of this, EPF subscribers will get to see the credit of Exchange Traded Fund (ETF) units to their account. EPF passively invests in equity markets through the ETF route.

Right after the EPFO announced this decision, Ms M. Sathiavathy— Labour Ministry secretary—said to the media, “EPFO has invested around Rs. 32,000 crore so far in the ETFs. The return on investment so far is 21.87 per cent. But this is notional because the EPFO would get this return only when it would liquidate this investment.”

She also said, "The policy will help us monetise equity investments.”

And added further that, “This spells out how the retirement fund manager plans to monetize its stock exchange exposure to benefit subscribers.”

Let’s see what exactly has changed…

As of now, the debt component——85% of the total corpus——which is invested in debt securities such as Government and other notified securities. The returns earned on this component are reflected in the interest rate declared for a particular Financial Year (FY). However, equity investments are managed in a pool account, and since these are not credited individually to each subscriber, the capital appreciation and dividends earned on the equity investments aren’t reflected anywhere in the returns.

With the change in the accounting policy, the unit balance credited to your name will show your share in the returns earned on equity investments. It is important to note that, no subscriber can trade in these units or sell them abruptly. Redemption of these units is only possible when the subscriber becomes eligible for the withdrawal and applies for the same.

PersonalFN believes, although EPF is one of the most suitable options to create a retirement kitty, you shouldn’t rely only on EPF.  

Since EPF predominantly invests in debt securities, it generates stable but low returns. Unless your retirement savings beat the inflation, you won’t be able to sustain your present lifestyle post retirement. Life expectancy is going up,  which makes it imperative for you to retire with adequate savings.

The corpus that you build for your retirement depends on 2 broad factors:

  • The choices you make, and
  • The behavior of the financial markets.

We have no control over the behavior of the financial markets, so let's leave that aside.

Consider the first. Can you imagine what your retirement life would be like if all the choices you made were absolutely perfect? If you didn't make a single retirement planning slipup, if every time you invested, it was according to plan, in the right asset class, in the right instrument, in the right option and at the right time? Wouldn't life be grand? 

To make sure that you have enough money for your retirement or golden years of life, start early, and plan your retirement today!  Avoid the “I’ve got age and time on my side” trap. When it comes to savings, think about the benefits of compounded interest and having enough time gives you the opportunity to gather a substantial nest-egg. Remember, the early bird gets a bigger worm.

Here are the five golden rules that can give you peace of mind during your retirement years if implemented correctly:

  1. Determine the retirement corpus
  2. Start early, and retire secured
  3. Follow your asset allocation
  4. Choose a suitable Insurance Policy
  5. Track and review your plan

Based on your risk appetite and financial goals, you should consider investing in equity-oriented mutual funds as well. Systematic Investment Plan (SIP) is a good option to build your retirement corpus without feeling and burden on routine finances. Remember that financial planning goes a long way towards future security for you and your loved ones. Not only will you be able to achieve your life goals, but you will also be able to be financially independent during your retirement phase. 

If you wish to learn more about retirement planning, we recommend you to subscribe to PersonalFN’s The Retirement Letter.

In The Retirement Letter, we will chalk out an entire retirement strategy for you! We will tell you how to...

  • Zero in on the exact amount you will need every month after retirement
  • Manage your cash flows — all your expenses and your savings
  • Save your taxes and invest that money on other money making options
  • …and much more!

But if you need handholding in your retirement planning, reach out to our experienced investment consultant, for an independent and unbiased advice. You will experience a holistic approach to plan for your retirement. This service includes:

  • Quantification of your Retirement goal
  • Your personal Risk Profile Analysis
  • Analysis of your overall financial situation including investments, insurance, incomes, expenses, assets and liabilities
  • Charting an ideal asset allocation for you
  • Developing a detailed financial plan which includes cash flows and making recommendations of investment instruments to achieve your Retirement goal
  • Reviewing your overall existing portfolio and recommending changes as needed 

At PersonalFN, we have seen our clients go through incredible growth phases - not growth of the financial markets, but phases of personal financial growth. 

When clients come to us, the state of their investments ranges from the slightly unstructured to the completely messy. If you don't know where your money is, you won't know what it's doing. Our clients often come to us slightly confused, not having articulated their financial goals, and looking for financial help. 

For more information on PersonalFN’s Retirement Planning Service, contact us at (022) 61361200 or write to us at We will be happy to help you!

Ensure that you don't delay your retirement planning a moment longer! Remember, the sooner you start, the more corpus you will be able to build!

Happy Retirement Planning; and 

Happy Investing!

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