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Hasty withdrawal of EPF can adversely affect your retirement planning

Author: Kumar Shankar Roy/Wednesday, November 13, 2019/Categories: Exclusive

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Hasty withdrawal of EPF can adversely affect your retirement planning

An individual today is a borrower to some, a lender to some and an investor too. But the maze of choices and lack of understanding about finance often force individuals to make sub-optimal choices. The multiple roles that an individual has to play in the financial world can leave you confused. How should I use credit cards? Is it in my best interest to repay home loan with provident fund? Will it be okay if I invest in debentures at a time when bank deposit rates decline? There are tons of questions that individuals have, and fortunately there is an expert advice from a veteran at hand. Raj Khosla, Founder and Managing Director at, answers some of the most intriguing personal finance questions in this interview with Kumar Shankar Roy of The Finapolis. Khosla, a Chartered Accountant (qualified in 1979), is regarded as one of thought leaders in financial products distribution arena and advises several banks on their distribution strategy.

There is some worry about the Rs 1 lakh deposit insurance coverage per person. Nobody knows what the future holds for them. Under the current situation, how should a person with Rs 10 lakh liquid money? Should they still keep the entire pot in banks, or diversify?

The health of the Indian banking system is truly resilient and depositors need not worry about the Rs 1 lakh limit on deposit insurance. The regulatory framework is robust enough to protect depositors’ money and you need not worry about a bank going belly up.

 However, keeping the entire pot in one Savings Account is never recommended. Everyone must diversify investments to reap the cumulative benefits of their savings. Ideally with Rs 10 lakh in your hand, you should choose at least a couple of nationalised banks or one nationalized and one of the leading private banks to park at least 20-30 per cent of your disposable income in Savings Accounts and Fixed Deposits. The rest of the savings should be invested in a mix of debt mutual funds – liquid fund and ultra-short fund.

Non-convertible debentures offers have seen huge retail participation. But, given the swift rating downgrades, etc., of the NCD issuer and interest payment issues, are NCDs safe for retail investors? How should one invest in them?

Non-convertible debentures (NCDs) are fixed-income instruments that offer enhanced returns to the investors as compared to convertible debentures and bank fixed deposits. Despite the reported issues with some of the NCD issuers recently, NCDs are havens for the investors. While investing in NCDs, retail investors should stick to high-rated and proven long term performance instruments. A retail investor with limited knowledge of NCDs can alternatively invest in debt funds and minimize risk.


The overall interest rates are declining. Annuities in life insurance offer guaranteed income for life. How should a person looking for hassle-free and guaranteed annuity income choose the annuity provider i.e. insurance company?

Investing your surplus income in an appropriate annuity plan is essential in meeting your long-term retirement needs. Before choosing a plan, carefully assess the past performance and returns of the annuity provider. Besides vintage, the experience of fund manager and past returns, you must evaluate various annuity options offered by insurer along with the concomitant ease of operations. Furthermore, pick the best match, basis for your requirements.

Burdened with a home loan and EMI payment worry, many often consider repaying the loan amount with EPF balance. What are the pros and cons of using EPF to repay home loan outstanding?

Employees Provident Fund (EPF) is a dedicated investment scheme for retirement and the corpus should not be consumed unless there is an emergency. An account holder gets sufficient liquidity after completion of five years of opening an EPF account. You can withdraw up to 90 per cent of the corpus to repay the home loan, 24 times of monthly salary for purchasing a plot and so on.

 By utilizing EPF for loan repayment you can successfully foreclose EMIs and ease your debt burden in a shorter tenure. However, as there is no one-size-fits-all, withdrawing retirement corpus for loan repayment is not recommended.

 A hasty withdrawal of EPF can adversely affect your retirement planning and may eventually exhaust your post-retirement benefits. In the current scenario, wherein you earn a highly attractive rate of interest on EPF at 8.65 per cent, it is not recommended to realign your retirement income for paying off a home loan.

 You should not withdraw the maximum available EPF limit for loan repayment. Rather, consume the corpus only partly for Home Loan repayment, so that you can reduce the interest liability and ease the monthly repayment burden at the same time.

 The use of plastic cards has been rising. Consumers are warming up to credit cards like never before. They are sold with many features such as cash back, reward points, access to the lounge at the airport, shopping deals, etc. How should one go about choosing credit cards? What are the factors that they should keep in mind?

Credit cards have indeed become a part of our everyday existence, including online transactions. One should procure at least 2-3 cards and tap the maximum benefits available on cashless spends. Whether you are a first-time credit card user or looking for an upgrade, you must first ascertain how much and where you are most likely to spend i.e. travel, lifestyle, food, petrol, etc., and then determine the best fit for yourself.

 Some of the factors worth considering include credit card limit, joining fee, annual fee, other charges such as mark-up fee, cash withdrawal charge, interest rate, etc, rewards and cash back programs, fuel benefits, etc. The card you select must offer maximum benefits at par with your spending habits.

 A credit card overdue can be an expensive ordeal. Thus the basis of applying for a credit card should be to enjoy upfront discounts, cash back and rewards, along with free credit up to 50 days. You must always repay the outstanding amount before the due date.

Do-It-Yourself investing has picked up the pace. But, do you feel Indian retail investors are fit for DIY investing? Wouldn't they be better placed with a financial advisor? Why do retail investors avoid taking expert help?

Well, Do-It-Yourself investing requires an in-depth analysis and knowledge about various investment options and market movements. With the spread of advisory websites, DIY video guides, research data online, it has become easier and almost free to make investment decisions without a financial advisor. However, there is no one-size-fits-all advice. It is recommended you avail of a professional advice from a certified financial planner or any other domain expert.


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