EPF rate to stay at 8.5% - Part 2

This article is an continuation EPF rate to stay at 8.5% - Part 1 which is a two part series.

Given the long term nature of the money that one is planning to put into the EPF, it is very important that the returns of the money invested in other options is reasonable, competitive and at the same time small differences in the returns over long periods of time make a significant difference over a period of 25-30 years.

Here is one option instead of contributing to EPF over and above the mandatory contribution.

Unit Linked Unit Plan (ULIP) - Unit linked plans are those that not only give you insurance cover but over long periods of time have given good returns even in the most conservative of the plans where all the money is invested in debt related instruments. Here are a few distinct advantages of ULIP over the EPF.

a. Tax treatment - Given that one is entering into a contract with the insurance companies today, the treatment of the income from ULIP after the maturity of the policy is tax free. However, in the case of EPF, while withdrawals are tax free today,it is quite possible that the withdrawals will become taxable if one goes by the recent news paper reports about taxing the withdrawals.

b. Alteration of risk profile - One has the ability to alter the profile of the investment over the life of the covered period by moving between equity and debt. However, in EPF no such facility exists.

c. Discipline in investment - Given that one gets into the contract with the insurance company for a committed investment during the tenure of the policy, it instills a sense of discipline where one is forced to continue the investment which if one does sustain, loses significant benefits of the previously made investment. While, a similar facility exists in contributing to EPF also, such commitment is not a must and no penalties are levied for lack of contribution.