Some people forget to pay their credit card and utility bills. Their intent is not to default on the due payment, but it simply gets forgotten in the daily scheme of things and they pay the penalty. But imagine when people even forget about their investments as well. What's the result? They tend to lose because of their negligence. For example, many people fail to claim their Employee Provident Fund (EPF) benefits.

These days, people often switch jobs. Ideally, you should transfer your PF account when you change your job, but some individuals prefer to open a new account and leave the older one idle. From the Financial Year (FY) 2011-12, inoperative accounts lost the benefit of earning interest. Any account that doesn't receive contributions for more than 36 months is classified as an inoperative account.
 

The above given table highlights the exposure of investors who are over 1% of the total market capitalisation of Tata companies. However, that doesn't tell you how much is the total exposure of a particular investor? For example, as per above given table, if you only consider investments of HDFC Mutual Fund which constitute 1% plus exposure to any Tata group company, the market value of such investment stands at Rs Rs 2,781.56 crore as on October 26, 2016. However, the total exposure of the fund house is to Tata companies was Rs 4,522 crore as on October 28, 2016. This implies that mutual fund houses are picking up companies as per the merits of underlying businesses. They are allocating more money to the companies they are more confident about.
 

This practice will change soon…
However, there wouldn't be any such classification from now onwards. The Government is in the process of putting out a notification to clear the way of Employees' Provident Fund Organisation (EPFO) to make the payment of 8.8% interest even in inoperative accounts. Inoperative accounts collectively have a balance of Rs 42,000 crore, as per the data published by the Labour Ministry.

Briefing the media about this development, the Labour Minister, Mr Bandaru Dattatreya said, "I have already signed the file concerned. Notification will be issued soon. We will pay 8.8 per cent interest on those accounts. About 9.70 crore workers or employees will benefit from this notification. This is a Diwali gift for the people. We will issue notification within a week."

Hailing this move, a senior officer from the Labour Ministry said that, "People can park their funds in EPF as long they want. Since the inoperative accounts are getting interest, people may not like to withdraw. It is a safe investment also. If not today, tomorrow we will have to pay to the claimant. So there is nothing called unclaimed."

PersonalFN is of the view that, payment of interest even in inoperative accounts is a progressive move. This is in stark contrast with its earlier intent of channelling unclaimed deposits in EPF, PPF, and Small Savings Schemes (SSS) to fund various projects of national interest. Dormant account holders stand to benefit from this development as the power of compounding will ensure that their retirement corpus keeps increasing. In case if you switch your present job that offers you EPF benefits to an organisation that doesn't provide you EPF benefits, you may still keep your old account untouched and may withdraw the money only when you turn 58.

PersonalFN also believes, when it comes to retirement planning you can't solely rely on your EPF savings. You need to customise your plan by considering your current expenditure pattern, your future needs, and current savings. Simultaneously, consider your risk appetite and figure out the right asset allocation. Intelligent allocation to various asset classes would help you build your retirement savings.

'The Retirement Letter' is a specialised service offered by PersonalFN that assists individuals who take retirement planning seriously. Retirement planning is not just about saving money, it's also about being adequately insured to be able to cover the costs of medical treatments.

Add Comments