Apr 02, 2013, 03.02 PM | Source: CNBC-TV18
In an interview to CNBC-TV18, Gaurav Mashruwala, Certified Financial Planner gave strategies on how one can plan finances at the beginning of the financial year.
Gaurav Mashruwala (more)
Certified Financial Planner, | Capital Expertise: Mutual Funds
Also Read: Unravel the Public Provident Fund in 5 steps
Below is the verbatim transcript of Mashruwala's interview with CNBC-TV18.
Q: It is the beginning of the financial year and our only hope is that people will use this opportunity to plan their finances as well as their taxes much in advance and not in March 2014, when the year ending comes. What would your strategy be in terms of people planning their finances; a lot of people get their increments around this time. Do you think it is good idea for employees to voluntarily opt for higher Employees Provident Fund (EPF) deductions?
A: It makes lot of sense because what happens is usually, whenever one has an increment or bonus or anything, retirement takes the backseat in the sense that people look at either splurging because of nearing summer vacations or people get into funding for their other goals. So, it makes sense to focus on retirement when one gets an increment and ensure that the additional amount that he will be getting gets deducted and added to the retirement corpus.
Voluntary contribution voluntarily to provident fund, usually companies prefer that the request is made at the beginning of financial year. So, if one has got an increment now then inform the HR department that he wants to make additional contribution to his provident fund.
One can do up to 100 percent of basic. Obviously that may or may not make sense but one may want to do it, put it on autopilot so that throughout the year, every month from the basic pay, there will be contribution happening to his voluntary provident fund.
Q: What is the rate of interest on this? Is there something like lock in period and if someone wants to withdraw then will you take a haircut on it?
A: Interest rates hover every year. The employees' provident fund organisation (EPFO) meets and the interest rates normally vary between 8-8.5 percent - that's number one. One can take out his corpus at the time of retirement however there are certain situations where he can withdraw interim. So, if there are situations like marriage in the family or home buying or there are some special situations where one is allowed to withdraw.
In terms of tax implications, contribution to provident fund is tax free, the growth is tax free and when one takes that money out, there is also a tax benefit. In fact, public provident fund is one more option where one can contribute. There has been some reduction in rate of interest there by 0.1 percentages. There is another option one can consider but here, generally, people tend to keep money till end and they only take it out towards the retirement. So, only when one retires, he should take out money and that is a prudent strategy.
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