Your PF is Better than Equity?!

How provident fund can beat mutual funds?

If I told you there's a way to earn 16% returns, risk-free, without even lifting a finger — and not through traditional equity investments — what would you say?

“Nitesh, this can’t be true! There’s a catch, right?”

That’s exactly what my client said when I told him this.

But no, I’m not lying, and there’s no hidden trick. This exists, and it's severely underused by Indians.

I’m talking about the Provident Fund, more specifically, your employer’s contribution to it.

But wait, isn’t PF return just 8.25%? Where’s the 16% coming from?

Hold tight, I’ll explain.

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🧾 What Exactly is EPF?

If you’re a salaried employee and part of the EPF (Employees’ Provident Fund) scheme:

• You contribute 12% of your basic salary

• Your employer contributes another 12%

Now, depending on your salary, this split happens:

• If your basic salary is ≤ ₹15,000
  → 3.67% of your employer's contribution goes into EPF,
  → 8.33% goes into EPS (Employee Pension Scheme)

• If your basic salary is > ₹15,000
  → The entire 12% goes to your EPF account

What’s the interest rate?
👉 8.25% compounded annually — and tax-free if held for 5+ years.

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💰 PF: The Ultimate Tax-Saving Investment

PF is one of the few investments in India with EEE status — Exempt, Exempt, Exempt.

Here's what that means:

• Exempt on Investment:
  Your contribution is deductible under Section 80C (under the old tax regime)

• Exempt from Employer’s Contribution:
  It’s not counted as part of your taxable salary

• Exempt on Growth:
  The interest earned is completely tax-free

• Exempt on Withdrawal:
  If you’ve completed 5 continuous years of service, you can withdraw tax-free

However, watch out for these limits:

• Employer contributions (PF + NPS + Superannuation) above ₹7.5L/year become taxable

• Your contributions above ₹2.5L/year become taxable

Unless you’re earning a very high salary, you’re safe.

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Why PF Is One of the Best Investments Out There

I know what you’re thinking —
“How can PF, which earns 8.25%, beat equity or gold?”

Let’s break it down with a study.

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As seen, Ram’s monthly investment in PF is higher than Shyam’s equity investment; that’s because by investing in PF, his employer’s contribution to PF is completely tax-free. Yes, even in the new tax regime.

Over 5 years, PF outperforms equity, simply because Ram saves tax and earns a stable return.

To beat the post-tax PF returns, Shyam would need to earn 16% in equity consistently.

Ask yourself this: Would you be able to do it?

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What Happens Over 10, 15, or 20 Years?

This is where the magic of PF truly shines. Let’s understand how much returns an equity fund would need to compete with PF, over longer time frames.

PF is arguably the greatest long-term debt investment, as it’s able to generate great tax-free returns with practically no risk.

Equity would need to deliver 10%+, every year, for 20 years, and nothing in debt investments can come close to the EPF.

That’s the power of an instrument that gives you stable, compounding, tax-free returns with zero effort.

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But Isn’t PF a Retirement-Only Investment?

That’s a fair question. Most people assume PF is only useful after 60. But that’s not always true.

Can PF be used for the short term?
Can it be part of a flexible financial plan?

That, my friend, is exactly what I’ll answer in next week’s newsletter.

Stay tuned. We’re just getting started.

Happy compounding,

CA Nitesh Buddhadev

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