Should you withdraw provident fund and invest in Equity Mutual Fund?

Given that the Equity mutual funds give approximately 14%  returns in long term, then should one withdraw provident fund and invest in Equity Mutual Fund? This is the question we will discuss in this post and pros and cons of it.

First who can Withdraw Provident Fund? 

  1. Anyone over 54 years of age, and within one year of attaining superannuation, can withdraw up to 90% of the accumulated balance with interest. Other than that, Employees can withdraw EPF balances only to fund purchase of property and for funding medical emergencies. 
  2. Employees who resign from a job before they turn 58 years of age can withdraw the full PF balance, if he is out of employment for 60 straight days (two months) or more after leaving a job and then withdraw.


withdraw provident fund

Points to be considered:

On the face of it, it can be easily said that in the long term, it is better to invested in Equities which gives 14+% returns vs provident fund which gives a fixed return of around 8 – 8.5% per annum. But there are many points as listed below, that one should be consider before making a decision

  1. Volatility: Equity  market is very volatile and can fluctuate quite a bit over a given period of time. One should be mentally prepared to face such volatility. Can you maintain your composure if your retirement money loose up to 50- 60% of value in a single year? This is the money you have been saving for child’s marriage or for that dream home or for your golden years of retirement when you are too old to take any other job. When markets enter bear phase – you only hear negative things around equity – all media, your neighbors, your colleagues – well pretty much entire world tells you that equity is bad idea. Do you have the stomach to sustain this and not react?
  2. Equity Selection: Selection of right Equity mutual fund is an art and science in itself, so if you want to consider investing your hard earned money in Equity Mutual Fund, then you need to make sure that you have selected the right fund and be ready to invested in that for a long long time. Following image is the YTD performance of India’s largest equity schemes in 2017. As you can see, there is quite a lot variation in the returns among these equity funds so it is important to make the right selection.
  3. Purpose: With the advent of online banking and investing, it is very tempting to use the money lying Equity mutual funds for immediate needs,  for example – that foreign vacation you always wanted to take or buying a new car. In case of a provident fund, it is little cumbersome process to withdraw money which also acts as a deterrence.
  4. Lump Sum vs SIP: When you withdraw provident fund, you get money in a lump sum and you have to decide whether you want to invest all that money at once or go the SIP route wherein you invest in your desired mutual funds at regular intervals. Lump sum investing involves timing risk, wherein if you invest entire sum at the market peak, you may not get the little less returns as compared to SIP.

If after thinking thoroughly around above points, if you decide to go ahead with the PF withdrawal process, the please see this link to know the detailed PF withdrawal process.

Disclaimer: I am not your financial advisor. Also, I am not SEBI Registered Investment Adviser. I write articles to share my opinion and experiences of managing money. The information and services may contain errors, problems or other limitations so I request you to contact your Financial advisor, CA or legal advisor for professional advice before making any financial decision. All views and opinions shared here are purely individual opinions. If you have any questions or concerns regarding this post then please contact me and let me know.


Posted in Financial Planning and tagged CA, financial Advisor.