In the financial year 2015-2016, PF gave interest at the rate of 8.8%. In the current financial year, it is expected that the interest rate for PF will decrease. For the upcoming years also, it is expected that the interest rate for PF will gradually decrease.
In current scenario, even if a person earns Rs.25,000 or Rs.30,000 per month, his/her basic salary will be very less. From the basic salary, 12% will be contributed by the employee and 12% will be contributed by the company towards provident fund. Generally, provident fund is contributed for up to a basic pay of Rs.15,000 only. For basic pay which are greater than Rs.15,000, provident fund is not taken. So, even if you earn Rs.1 lakh, Rs.1,800 + Rs.1,800 (Rs.3,600) only will be contributed towards provident fund. And also, employees can voluntarily contribute towards provident fund (Voluntary Provident Fund).
Even though, if you do not take money from your provident fund (like for marriages, school fees and other emergency needs), the amount which you get at your retirement is very low only.
Practical Case StudyLet us assume that your age is 28. Your retirement age is 58. Therefore you have 30 years for your retirement. And you save Rs.3,600 in your provident fund. It gives an interest rate of 8.8% per year. Thus, your maturity money from your provident fund at the time of retirement will be Rs.56.73 lakhs. Look at the table below for your understanding.
|Investment Type||Expected per Annum Income||Monthly Savings in Rs||Maturity Amount after 30 yrs|
|Equity Mutual Funds||12.00%||Rs.3,600||Rs.1,04,25542|
After seeing the above table, you could ask "So no need to invest in provident funds?". The answer to this question is "Don't invest more money on your provident funds". There is no doubt that provident fund is a more secured investment type. This type of investment should be made by everyone. Invest the money in provident fund which your company fixes as maximum match amount. But, investing your surplus money (not urgently needed) in equity mutual funds is the correct. Look at the another scenario (case study) how you could do it.
Taking a case study of a model family in which the familyman's age is 30. First child's age is 2. The needs of family, how to invest money is described through table 2. This must give you an idea on how to make investment plans for a normal family.
|Need for Investment||Money Needed at Present||Years in Hand||Money needed after yrs (column 3) incl. 6% inflation||Monthly Investment PF/VPF/PPF (8.8% returns)||Monthly Investment in Mutual Funds (12% returns)|
|College Fees||Rs.10 Lakhs||15||Rs.24 Lakhs||Rs.6,911||Rs.5,358|
|Marriage||Rs.15 Lakhs||23||Rs.57.5 Lakhs||Rs.7,053||Rs.4,565|
|Monthly Pension||Rs.20,000||28||Rs.1.02 Crores||Rs.13,377||Rs.7,659|
At the same time, the very important thing to note is that, you could invest the saved rent amount (or money greater than that) can be invested in provident fund or voluntary provident fund. Thus you will get more matured money at the time of your retirement.