Knews Desk– This question definitely comes in the mind of most of the working people that which is the better option for retirement – Employees Provident Fund (EPF) or Mutual Fund? Both are popular investment instruments, but their objectives, risks and benefits are different. To remove this confusion, Employees’ Provident Fund Organization (EPFO) has recently shared information, in which aspects like returns, tax, pension, insurance and security have been compared between EPF and mutual funds.
According to EPFO, EPF is a government social security scheme, which has been specially designed for organized sector employees. In institutions where EPF law is applicable, it is mandatory for the employees to join it. Every month, a fixed amount is deposited in the EPF account from the employee’s salary and the same fixed share is also given by the company. This is the reason why the retirement savings of employees investing in EPF increase rapidly. On the contrary, mutual funds are a completely voluntary investment option. Investing in it or not depends on the investor’s own wish. There is no contribution from the company in mutual funds. The return on the amount an investor deposits increases his total wealth. Therefore, the entire responsibility and profit of investment lies in the hands of the investor.
The nature of both the options is different in terms of returns. The interest received on EPF is decided every year by the government. It gives fixed and relatively safe returns, due to which investors do not have to worry about market fluctuations. Whereas, mutual funds are linked to the market. If the stock market performs well then investors are likely to get higher returns from EPF in the long run. However, there is still a risk of loss if the market falls. A major advantage of EPF is tax exemption and social security. Under the prescribed conditions, the amount deposited in EPF, the interest received on it and the maturity amount can come under the ambit of tax exemption. Apart from this, employees associated with EPF also get the benefit of Employee Pension Scheme (EPS), through which they can get regular pension after retirement. Not only this, EPF members can also avail life insurance benefits of up to ₹7 lakh if they are eligible under the Employees Deposit Linked Insurance Scheme (EDLI).
On the other hand, investors in mutual funds do not automatically get facilities like pension or insurance. If a person chooses a mutual fund for retirement, he has to arrange for a separate pension plan or insurance cover. However, making regular investments in equity mutual funds over a long period of time has the potential to create better wealth. Experts believe that EPF and mutual funds should not be seen as substitutes for each other but as complementary investments. EPF helps in creating a secure retirement fund, while mutual funds provide an opportunity to beat inflation and earn higher returns in the long run. In such a situation, it can prove to be a balanced strategy for employed people to continue making regular contributions to EPF and also investing in mutual funds as per their risk appetite and financial goals. This also provides an opportunity to create better wealth along with secure savings at the time of retirement.
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