Why should you withdraw your PF Balance immediately after getting unemployed?

One of the oft-asked questions is, should one withdraw his PF Balance immediately after getting unemployed? And more often than not employees  don’t get a satisfactory answer for this. So, Today we are going to unlock this question, but before this, we must understand what PF is and how it works. Only then we can answer Why you should withdraw your PF Balance immediately after getting unemployed? Making use of an online EPF login can in turn turn out to be helpful.  

What is a Provident Fund?

Provident fund or pension fund strives to provide employees with lump-sum payments at the time of retirement from their place of employment. It offers monetary benefits to the employees after they retire. It is a part of an individual’s salary, which is deducted on his behalf every month. 

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How does Provident Fund work?

  1. Government has made it mandatory for any firm where there are more than 20 employees to get themselves registered under the EPF Act.
  2. Under EPF, the employer has to contribute for 12% of an individual’s primary and dearness salary, and it will be kept aside as a provident fund.
  3. He also has to deposit 12% of an individual’s primary and dearness salary.
  4. 12% of employees share is part of CTC.
  5. The 12% paid by the employer is distributed into two parts – 8.33% goes to the Employees’Employees’ Pension Scheme (EPS), and 3.67% goes to the Employees’Employees’ Provident Fund (EPF). 
  6. Interest is earned on the fund deposited in EPF, but EPS doesn’tdoesn’t earn any interest.

Why should one withdraw his EPF amount?

Now that we have understood what is provident fund and how does it works, let us, deep-dive, into the nitty-gritty of why one should withdraw the PPF amount.

  1. One of the prominent reasons for experts to urge people to take out their amount from the EPF immediately after they get employed is the amount in EPF interest becomes taxable post employee get unemployed due to any reasons be it opening his own business, pursuing further studies or anything.

     2.  If the employee remains unemployed for more than three years than the EPF amount even                stops earning any interest rate. This means the value of money decreases with time due to                   inflation. 

  1. The amount invested in EPF never provides interest or fetches take risk according to the risk appetite of EPF holders. Irrespective of the nature of the EPF holder to earn high-interest rate.
  1. One of the reasons one must withdraw his EPF Balance immediately after getting unemployed is the very nature of the EPF system. There are too much red tape and bureaucracy.

So what step one should take?

One of the good things about EPF is one can withdraw the total amount of his EPF balance after two months of unemployment. In this case, unemployment will include things like taking a short break to get rejuvenated, to study, moving to a non-EPF registered firm or launching a start-up. The amount withdrawn can be used to invest in PPF or Fixed deposit or some other investment.

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