EPF rate cut to 8.55%: Why it is still one of the best retirement savings option for investors

The Central Board of Trustees (CBT) of the Employees’ Provident Fund Organisation (EPFO) has suggested a reduction of interest rate on PF balances to 8.55% for 2017-18 as compared to 8.65% the year before. Two years ago, the EPFO paid 8.8% on EPF balances. How good is provident fund returns compared to returns in other products especially small savings instruments? Here are some of the features that make it an attractive savings options.



Despite the falling rates, EPF still holds saving advantage over other retirement savings fund. Kunal Bajaj is CEO & founder of Clearfunds.com said that it is backed by Government of India and secondly, while the rates may vary each year, they generally move around a small band. “Importantly, EPF  is tax-free during the period interest is earned as well as at the time of withdrawal,” he added.

Benefit of investing in EPF

EPF can be easily transferred from one company to the other through UAN (Universal Account Number) if one changes jobs. However, in case of PPF, changing the account from one bank to bank to another is a huge hassle if you go by anecdotal evidence. In case of fixed deposits, there is no portability among banks.


Naveen Kukreja – CEO& Co-founder, Paisabazaar.com told Moneycontrol that EPF provides social security to the employees covered under the EPF & MF Act by providing long-term savings, pension income and insurance coverage of up to Rs 6 lakh. The rate of interest offered is also higher than most small savings schemes and bank fixed deposits.

“The restriction of EPF ensures forced savings for employees while benefiting them from the power of compounding. However, EPF allows partial withdrawals for specific expenses, such as higher education, marriage, illness and house construction,” added Kukreja.

“EPFO also has allowed members i.e. the contributory employees of the provident fund (PF) scheme to use 90 percent of EPF accumulations to make down payments to buy houses and use their accounts for paying EMIs of home loans. Under the new rules, an essential requirement for a PF member to withdraw one’s PF money to buy a real estate property is that he or she has to be a member of a registered housing society having at least 10 members. This facility is not offered by PPF or any fixed deposit scheme,” said Anil Rego – CEO, Right Horizons.



PPF vs EPF

EPF as regular base income upon retirement gives a lot of flexibility in using the money, even though tax benefits are about the same. From purely the perspective of access, EPF has more access points in the accumulation phase, and also offers friendly withdrawal norms.

“EPF funds can be withdrawn under certain circumstances and also for certain defined life events. If you urgently need the money, you can take a loan on your EPF. In comparison, PPF account holders can only take a loan between the third and sixth financial year of opening the PPF account,” said Rego.

While the financial years started PPF gave 7.9% in early quarters. Currently, PPF is offering 7.6% interest rate in the 4^th quarter of the financial year 2017-18 which is reduced by 0.2% from the previous quarter (3^rd) of same financial year. On an average throughout the FY, PPF offered around 7.76% average return. However, EPF, on the other hand, is giving 8.55% for the financial year 2017-18 which is around 0.8% higher than PPF rates.

Rate Comparison: EPF vs other Retirement Savings funds