Please advise whether it is wise to withdraw PF and invest in Stock or Mutual Fund for the below scenario . Age 39, resigned from Indian MNC , while I was abroad, almost 3yrs ago and I understand PF interest will not be paid after 3yrs. (PF is held in the trust account of MNC) . While my PF is earning interest currently, my previous organisation is charging me 10% TDS. I might relocate to India in the future and might join an Indian company but I risk losing the benefit of earning interest until I join back in India. And, I lost the tax component charged as TDS for the interest earned in MF.

Ans: Yes, amount received from EPF before completion of 5 years of service will be taxable and TDS will be deducted @10%

Ans: When faced with the decision of whether to withdraw your Provident Fund (PF) corpus upon job loss or to maintain your PF account by joining another company, it's essential to carefully weigh the pros and cons. This decision can significantly impact your financial well-being in the short and long term. Let's break down the key considerations to help you make an informed choice.

Understanding the Provident Fund
The Provident Fund is a crucial component of retirement savings in India. It offers tax benefits, regular contributions from both employee and employer, and a decent interest rate. Withdrawing the PF corpus can provide immediate liquidity, while keeping the PF account active can ensure continued growth and future security.

Advantages of Withdrawing PF
Immediate Financial Relief
Withdrawing your PF corpus can offer immediate access to a substantial sum. This can be particularly helpful if you face financial difficulties due to job loss. It can provide a cushion to manage expenses and maintain your lifestyle during the transition period.

Debt Repayment
If you have any outstanding debts or loans, withdrawing your PF can help you clear these liabilities. Reducing or eliminating debt can lower financial stress and improve your overall financial health.

Investment Opportunities
Accessing your PF corpus can allow you to explore new investment opportunities. You might consider investing in diverse financial instruments to potentially earn higher returns compared to the PF interest rate. However, this requires careful planning and understanding of investment risks.

Disadvantages of Withdrawing PF
Loss of Retirement Savings
Withdrawing your PF corpus means depleting a significant portion of your retirement savings. This can impact your financial security in your post-retirement years, especially if you don't have other substantial savings or investments.

Tax Implications
Early withdrawal of PF before five years of continuous service can attract tax liabilities. The withdrawn amount becomes part of your taxable income, which could increase your tax burden significantly.

Compounded Growth Loss
By withdrawing your PF, you lose the benefit of compounded growth on your savings. The PF interest rate, compounded annually, helps your corpus grow over time. Withdrawing the amount halts this growth, impacting your long-term savings.

Benefits of Continuing PF Account
Continued Compounded Growth
Keeping your PF account active allows your savings to grow with the power of compounding. Even if you join another company, your new employer's contributions, combined with your own, will continue to enhance your PF balance.

Financial Security
Maintaining your PF account ensures you have a dedicated retirement fund. This financial cushion can be crucial during your retirement years, providing a steady source of income when you are no longer earning a regular salary.

Employer Contributions
When you join a new company, both you and your employer will continue contributing to your PF. This not only increases your savings but also adds to your financial stability over time.

Considerations Before Making a Decision
Age and Retirement Plans
At 55 years old, your retirement is relatively close. Withdrawing your PF now could impact your retirement plans. Assess your retirement goals and determine if you have sufficient savings and investments to support your desired lifestyle post-retirement.

Current Financial Needs
Evaluate your immediate financial needs versus your long-term goals. If you have other savings or sources of income, it might be wiser to keep your PF account active. However, if you are in urgent need of funds, withdrawing might be necessary.

Job Prospects
Consider the stability of your next job. If you are confident about securing a stable job with a steady income, keeping your PF account active is beneficial. However, if there is uncertainty, having immediate access to your PF corpus might provide financial security.

Managing Your PF and Future Investments
Diversification
Whether you decide to withdraw your PF or keep it active, diversification of your investments is crucial. A balanced portfolio can mitigate risks and enhance returns. Consider a mix of equity, debt, and other financial instruments based on your risk tolerance and investment horizon.

Consulting a Certified Financial Planner
Engaging a Certified Financial Planner (CFP) can provide you with tailored advice based on your unique financial situation. A CFP can help you create a comprehensive financial plan, ensuring your short-term needs and long-term goals are balanced effectively.

Regular Review
Regularly reviewing your financial plan and investment portfolio is essential. Life circumstances and financial markets change, and your strategy should adapt accordingly. Periodic reviews with a CFP can help you stay on track.


Losing a job at 55 can be challenging, but it's commendable that you are taking proactive steps to secure your financial future. Your diligence in considering the best options for your PF corpus demonstrates a responsible approach to financial planning. Remember, every decision has its pros and cons, and it's important to choose what aligns best with your overall financial goals.

Conclusion
Deciding whether to withdraw your PF corpus or keep your PF account active upon joining another company requires careful consideration of various factors. While immediate withdrawal provides liquidity, it can impact your long-term financial security. Conversely, maintaining your PF account ensures continued growth and future financial stability. Assess your immediate needs, retirement goals, and job prospects before making a decision. Consulting with a Certified Financial Planner can provide valuable guidance tailored to your unique situation.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Your situation is quite common among professionals who have relocated abroad. It's great that you are considering your options wisely. Let's explore your options and see what might work best for you.

Understanding Your Provident Fund (PF)
Your Provident Fund (PF) is a long-term savings scheme to provide benefits during retirement. You have a significant amount accumulated from your years of service in India.

Keeping Money in PF Until Retirement
Leaving your money in the PF account until retirement has certain advantages.

Benefits of Keeping Money in PF
Safety and Security: PF is a government-backed scheme, offering high security.

Tax-Free Interest: Interest earned on PF is generally tax-free until withdrawal.

Regular Pension: Upon retirement, you will receive a regular pension from the Employees’ Pension Scheme (EPS).

Potential Drawbacks
Lower Liquidity: Funds are locked in until you reach retirement age, limiting access.

Inflation Impact: The fixed interest rate may not always keep pace with inflation.

Withdrawing PF and Investing Elsewhere
Alternatively, you can withdraw your PF and invest it in other instruments like Fixed Deposits (FD) or Mutual Funds (MF).

Benefits of Withdrawing and Investing
Higher Returns Potential: Mutual funds, especially equity funds, have the potential for higher returns.

Diversification: Investing in different instruments can spread and reduce risk.

Liquidity: Investments in mutual funds and FDs are more liquid, allowing easier access to funds.

Risks to Consider
Market Volatility: Equity mutual funds can be volatile and subject to market risks.

Tax Implications: Withdrawals from PF before 5 years of continuous service are taxable.

Evaluating Fixed Deposits (FD)
Fixed Deposits (FD) are a safe investment option but have their own pros and cons.

Benefits of FDs
Safety: FDs are low-risk and provide guaranteed returns.

Fixed Interest: You know exactly how much interest you will earn over the term.

Drawbacks of FDs
Lower Returns: FDs typically offer lower returns compared to equity mutual funds.

Taxable Interest: Interest earned on FDs is taxable, reducing net returns.

Evaluating Mutual Funds (MF)
Mutual funds can offer better returns, especially if you choose actively managed funds.

Benefits of Mutual Funds
Higher Returns Potential: Over the long term, mutual funds, especially equity funds, can provide substantial returns.

Professional Management: Fund managers handle investments, aiming to maximise returns.

Diversification: Mutual funds spread investments across various assets, reducing risk.

Disadvantages of Index Funds
Average Returns: Index funds mimic market indexes and provide average returns, which may not be optimal.

Lack of Flexibility: They cannot adapt to market changes like actively managed funds can.

Less Protection in Downturns: Index funds cannot avoid poorly performing sectors or stocks.

Choosing Between Direct and Regular Funds
When investing in mutual funds, it’s important to choose between direct funds and regular funds.

Disadvantages of Direct Funds
No Advisory Support: Direct funds lack guidance from a Certified Financial Planner (CFP).

Time-Consuming: Managing and choosing the right funds requires significant time and knowledge.

Higher Risk of Missteps: Without professional advice, the risk of making suboptimal choices increases.

Benefits of Regular Funds
Professional Guidance: Investing through a CFP provides expert advice tailored to your goals.

Regular Monitoring: A CFP regularly reviews your portfolio, making necessary adjustments.

Optimised Portfolio: CFPs ensure your investments align with your risk profile and goals.

Deciding the Best Course of Action
To decide whether to keep your PF or withdraw and invest, consider the following:

Personal Financial Goals
Time Horizon: If you have a long-term horizon, mutual funds might be suitable for higher returns.

Risk Tolerance: Assess your comfort level with market volatility and risks.

Financial Needs
Liquidity Needs: Consider if you need access to funds before retirement.

Tax Considerations: Evaluate the tax implications of withdrawing your PF and the tax benefits of other investments.

Conclusion
Deciding whether to keep your PF until retirement or withdraw and invest in other options depends on your financial goals, risk tolerance, and need for liquidity. Keeping your PF offers security and a regular pension, while withdrawing and investing in FDs or mutual funds could potentially offer higher returns. Consulting with a Certified Financial Planner can provide personalised guidance and help optimise your investment strategy.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in