If you have taken a look at your salary slip, it is very likely that you must have noticed a deduction called PF Contribution.
Is PF right for you?
What is this investment made for?
Should you withdraw from your PF account?
Know how PF can help you save for your retirement in the new episode of MoneyKiBaat..
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PF or Provident Fund - The amount that gets deducted from your net salary .
Is PF good for employees?
Should you withdraw money from PF?
We'll learn about it in today's episode.
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We need to first understand what is the purpose of PF. PF is not like taxes that you won't get back the money once it gets deducted.
PF is an investment for you. Unlike other investments like Mutual Funds, Fixed Deposits and Stocks are instruments where you invest voluntarily. However, PF automatically gets deducted from your salary. This is the only difference.
PF's primary objective is to invest for long term. i.e, to save for your retirement. If you get the entire salary without PF getting deducted, you might fail to save for long term goal like Retirement. You might end up spending all your money or invest for some other goal.
Just because retirement is a long term goal, we don't think much about it. Hence, it is a mandatory scheme backed by government, so that you can save some portion of your retirement corpus.
You will no longer earn after your retirement due to which you need some money to spend for your living after your retirement.
You need to invest for retirement separately regardless of some portion of your salary getting deducted as PF. In most of the cases, PF does not target your entire retirement corpus. You might require to invest some additional amount depending on what kind of lifestyle you want after your retirement.
Hence, in my opinion, PF is not a bad investment. PF is a good investment option in terms of Retirement savings. It is a safe investment as it is government backed. whose interest rate is decided by the government on a regular basis. And it allows you to enjoy certain tax benefits as well. Since, it is a government backed scheme, your money will be safe too.
Now the question is, whether you should withdraw money from your PF or not. You can withdraw money from your PF account before retirement in certain cases like medical emergencies, house construction, higher education, unemployment.
In such cases, you can make partial withdrawal. Under normal circumstances, you can withdraw money from your PF account as it is just like any other investment.
It is not wrong to withdraw your PF in general. However, we don't think of our retirement. PF account is specifically created to save for our retirement.
However, we tend to utilise the PF money to fulfil other financial obligations considering that retirement is a long term goal. It will be wrong to withdraw PF money with that mindset. Hence, if you withdraw money from your PF account for a purpose other than your retirement, you have to ensure that you make additional investments to cover up the deficit in your retirement fund as a result of withdrawing money from your PF account.
If you cannot maintain this, then do not withdraw money from your PF investments until and unless it is the absolute necessity.
If you really have no other options left, only then withdraw money from your PF account.
Otherwise, if you've got other options, let your PF be there for your retirement. Some people argue on the fact that since retirement is a long term goal, it is better to invest in equity mutual funds or stocks to enjoy better returns. Also, since PF is a debt scheme, it doesn't give you as much returns as equity schemes or stocks in the long run.
That's a fair point. Ideally you will invest most of your money in equity related schemes for retirement or other long term goals. However, you must invest some portion of your money in safe instruments as well.
PF is a safe investment which is government backed which will give you interest with absolute certainty.
Therefore, this reduces the risk of your overall portfolio. Investing some portion of your money in safe instruments is good for your overall financial health.
Hence, if some portion of your investments is allocated to PF, the overall risk of your investments will be less. So don't take out money from your PF unless it is absolutely necessary. Keep it for your retirement.