I'm quitting my Indian job of 5 years and going on a sabbatical. What do i do with my PF?

Question

I work in the tech space.I quit my job after 4 years and 9 months.

I am not going to a new job but am taking a sabbatical. I guess it's more of a short break. After this break of 2-3 months, I will be looking for jobs in the start-up space. So the possibility of transferring my PF to the new employer are low (given that start-ups in India rarely have a PPF account/system).

Due to this, I'm not sure of the decision to take on my PF balance. The way I see it, I have two options:

1. Transfer current PF amount to PPF (The public PF scheme backed by Govt. of India)

   OR

2. Withdraw the money and find a new form of investment.

From initial analysis, it looks like the traditional/conservative advice is to invest it in the PPF since it serves a dual purpose: your money grows safely while you can apply for interest free loans on it too. However I stumbled upon an internet article that says this borrowing is allowed only after 6 years of investing in the PPF.

I would appreciate the financial experts' advice. Specifically:

1. What are the pros and cons of either option?
2. Is there any other 3rd solution for this situation?

Answer 1

A. At any point of time, PF is the best investment option with fixed returns and capital safety. The best, returns are tax-free if you continue to hold on. Pre mature withdrawal is possible for Education or marriage, Medical treatment,Construction or purchase of a flat, house or plot,Repayment of Home Loan. However there are certain conditions/procedures to be followed for the pre mature withdrawal.

A provident fund (PF) is basically a plan to provide financial security after retirement. It is, therefore, not advisable to withdraw any amount from one's provident fund account as PFs are primarily meant for retirement planning, and retirement planning is the most important goal in any person's life. Hence do not touch or withdraw from PF unless and until there is no other option available.

B. Let the PF investments be as it is during your sabbatical.

C. When you join a startup, may be they will have less employees. But the PF Act is very clear, any organization employing more than 19 employees ( including contract employees) should compluslory have PF system in place. You can rest assured that PF system will be in ur new company sooner than you expect.

D. There is no other solution for an alternate to EPF. Kindly do not withdraw from EPF and invest in any risky investments. Any investments you make should be in accordance with your assets allocation plan and risk profile.

Do revert if you have any more queries.

Regards

Answer 2

1. Transfer current PF amount to PPF

Sorry, you cannot transfer EPF into PPF. The investments in PPF are limited to 150,000 per year. Withdrawal is in 7th year, i.e. After completion of 6 financial years. 50% of the Balance of 4th year can be withdrawn.

2.Withdraw the money and find a new form of investment.

This is definitely possible. A lump sum investment into NPS [New Pension Scheme] or various Retirement schemes, or equity / real estate etc

Is there any other 3rd solution for this situation?

Keep the money AS-IS as the money will still continue to grow. The interest is stop getting accrued after 3 years of NO contribution. Within 36 months if an account will not get any deposit then it will be considered as dormant/inactive account. So you can wait for sometime before you decide to withdraw.