Salaried employees often want to park a portion of their funds in various kinds of investment tools to build a corpus for the future. Multiple investment options are available, ranging from those provided by the government to those initiated by the investors themselves. Each investment tool functions differently and thus provides a different route and outcome while serving the investors’ needs. Two such methods available to most salaried employees are the Employees’ Provident Fund (EPF) and the stock market.
While the right choice depends entirely on one’s investment methods, financial planning, and goals, the Employees’ Provident Fund Organisation (EPFO) says the Provident Fund is better for long-term social security. In a video posted on its official YouTube channel, the EPFO explains why employees should choose EPF over the stock market.
1. An EPF account is mandatory for employees whose salaries are up to the wage limit which currently stands at Rs 15,000, provided they work in institutions where the EPF Act applies. The employee can make withdrawals from the account only for specific purposes, which do not include investing in the share market. Meanwhile, the share market is a voluntary investment channel with no such conditions applied to withdrawals.
2. The purpose of the EPFO is to provide financial security for post-retirement life, while the share market is a gain-oriented medium of investment.
3. The employer and the employee each make a contribution of 12 per cent to the EPF account. On the other hand, the money in the share market is invested entirely by the investor.
4. Contributions to the EPF account ensure guaranteed and additional returns, whereas returns in the share market, though they may be higher, are not guaranteed.
5. Provident Fund contributions are monthly, disciplined, and mandatory, which makes it a balanced and structured channel of investment. Conversely, one may choose to invest as per convenience or not invest at all in the share market, making it volatile.
6. The rate of interest earned on funds in the EPF account is declared by the government, while returns on investment in stocks depend on the constantly fluctuating share market.
7. Tax is largely exempted on contributions, interest, and withdrawals in EPF. In the share market, the profit earned from selling shares incurs capital gains tax.
8. EPF has provisions for social security benefits, including pension and insurance, whereas the share market only covers the transfer of investment value. Through these social security benefits, provident funds ensure a safe and secure backing for the future.
EPF is a government-provided social security tool and an assured mode of investment for the post-retirement period, which differs from the share market that requires investment based on one’s endurance for the associated risks. The EPFO acknowledges the different purposes served by both, as well as the wealth-creation ability of stock market investments.
