Investment Strategies: How Should I Invest The Proceeds From My Employee Provident Fund?

by Vinaya HS on July 29, 2010

in Finance

Thanks for visiting Capital Advisor. I frequently update this blog to cover various topics on personal finance such as investment strategies, financial products that you should buy and ones that you really should stay away from, financial calculators, emerging themes such as early retirement and financial independence, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

A friend asked,

I’m in the midst of changing jobs and have opted to withdraw the savings in my Employee Provident Fund. It’s a decent sum — around Rs 300,000 — and I wish to keep this money safe. Is there a way I can achieve this and yet earn a steady income?

My immediate answer was a fixed deposit with periodic interest payouts, but my friend has been investing in tax-saving fixed deposits and was looking to diversify. My next suggestion was the Post Office Monthly Income Scheme. And, in case you don’t need the monthly income, automatically roll that amount into a Recurring Deposit.

What would you suggest?

Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

{ 7 comments… read them below or add one }

Ashutosh July 29, 2010 at 10:18 AM

Hi Vinaya,

One very good and efficient way of getting a steady return and capital appreciation at the same time is using the SWP (Systematic Withdrawal Plan) of Mutual Fund. And in case he doesn’t require the money immediately he can either directly use STP (Systematic Transfer Plan) or keep re-investing the withdrawn amount in Debt Funds, which surely give better returns than FD/RD.

Whats your view on this ?


Vinaya H S July 29, 2010 at 9:43 PM


Good idea. But I did some research on SWPs and find that there are two withdrawal options a) fixed amount each month irrespective of your portfolio increasing or decreasing in value, and b) capital appreciation each month (if there is any).

So, there’s no guarantee that you’ll have a payout each month while still preserving your portfolio’s value.

With the MIS, however, you have a guaranteed income each month while your capital is preserved (and receives a 5% bonus upon maturity).

Vinay July 29, 2010 at 10:22 PM

Dear Vinaya- Post office MIS schemes are good. I suggest you invest in it and during maturity I believe you also get bonus too. Let me check and tomorrow I will keep you posted.
BTW, you should not have closed your PF. You have transferred it to you new employer and PF is a very good tool during old age as Pension and interest free.

OR Choose a good mutual fund like HDFC Equity/Prudence Fund or HSBC Equity or DSP Black Rock top 100 or IDFC premier or ICICI Infrastructure Fund. Vision is qually distrubute the amount in 2/3 funds for next 3 years.

Also I suggest since the amount is huge, complete this year savings of 1Lac on PPF, LIC, ELSS and balance amount can go to MIS or MF’s
Good luck Sir!

Ajay July 30, 2010 at 11:20 AM

If the new company offers EPF then I suggest to get the account transferred and continue with EPF instead of withdrawing now and investing elsewhere.
Remember for the amount that you choose to put in PF the company matches the contribution (up to a max number though) and is helpful in later stage of life… Afterall very few give you 8.5% guaranteed returns.

Vinaya H S July 30, 2010 at 12:46 PM

Vinay, Ajay,

I have heard that transferring your EPF over to your new employment is a nightmare. Do you have any experiences to share on this?

Vinay July 30, 2010 at 8:40 PM

Vinaya- Their no nightmares. Ensure that the new employer is efficient enough to apply for a transfer and would take 2/3 months for the transfer. Follow up with your HR regularly.

Ashutosh August 5, 2010 at 2:19 PM

Hi Vinaya,

Have you made some changes on your website ? Earlier I use to get auto notification when someone replied to any comment I had made on a post. Now thats not happening.


Previous post:

Next post: