Govt restricts EPF withdrawal amount to employees share only till retirement

Posted on February 24, 2016November 15, 2019 by Jagoinvestor

Indian Govt has brought a new amendment in the EPF rules, according to which the members will not be able to fully withdraw from their EPF before they reach the retirement age.

The maximum one will be able to take out is their own contribution and its interest (which was raised to 8.8% recently), and that can be done only after 2 months of ceasing employment.

The only exception shall be made for female members resigning for the purpose of marriage or pregnancy or child birth. I came across this news from Nitin Jain when we got an mail from his employer about this notification. Thanks for Nitin to send the notification PDF to me.

EPFO restriction news

Below is the snapshot of the exact wordings taken from the notification which was released by the govt recently. please find out the PDF of the notification here

EPF notification limit on withdrawal

So whatever your employer is contributing to EPF and the interest on that part will be retained in EPF till the retirement age and you will be able to use it only at the end.

Many investors when they change jobs withdraw from their EPF’s and till now they used to get the full amount. But this is not going to happen from now onwards. What this means is that if you have an EPF account, your relationship with EPFO is lifelong now, because your account will be active till you retire (or die)

This is not a sudden decision taken. It was properly planned many months back itself and there was news about this restriction coming up in future, however that time, it was said to be the limit of around 75% of the total amount, but now it’s close to 50% only (employees share only).

Also note that as per the stats from EPFO; out of the 13 million annual claims pending with the EPFO, over 6.5 million claims are for 100% withdrawal, that’s 50%. This means that out of every 2 claims which EPFO gets for withdrawal, 1 of them is for full withdrawal.

This means that a big portion of claim withdrawal applications was coming from people wanting to withdraw the full amount. Now with this new rule, the number of applications to EPFO will also reduce drastically.

Is this new change in EPF withdrawal rules Good or bad?

From an employee’s point of view, the flexibility to withdraw the full amount (the painful process) has gone and now you can’t just take out full money like you used to do earlier. EPF is a social security measure, and was designed keeping that in mind, but people used to apply for withdrawal the moment they changed the jobs most of the times, now with this new change, it will not be possible and in reality one will be forced to keep a part of their wealth in EPF till their retirement

No matter how much I try to think like an employee, my experience of working with thousands of investors tells me that it’s a good move. PDF is the only saving at the moment, which happens by default for a salaried person, and even though one does not touch it for years, eventually a big percentage of the population always thinks of withdrawing the money on job change and the money gets utilized somewhere.

Retirement Age increased from 55 to 58

Another change in the notification is that the retirement age is increased from 55 yrs to 58 yrs, which means that one can now only consider themselves to be retirement from the EPF point of view once they turn 58 yrs. One can also apply for a pension only at that point in time.

This is a good move if you think long term. Consider a person who is 28 yrs old, and his salary is Rs 30,000 per month. Assume that his basic salary is 40% of the gross amount, which here comes to 12,000 per month. Now on this, he will get 12% of salary deducted as for the EPF and another 12% will be added from the employer which would total Rs 2,880 per month.

Now if the salary increment happens @7% per year and the return on EPF continues to be 8% per year, the person will retire with 80-90 lacs of EPF corpus at the time of retirement, provided he does not withdraw anything in between. However now even if the person chooses to withdraw the money in between, with this new rule the employer contribution is going to the restricted and one will bound to have 40-50 lacs at a time to retirement (with the assumptions above). Below is the chart which shows how the numbers move.

EPF corpus new

Note that the above chart is only for illustration purpose, The only point I want to make it a decent amount of money will be there at the time of retirement because of this new forced rule.

Please share what you think of this new rule. Do you think it’s good or not? How do you react to this?

How mutual funds operate internally and have strong structure ?

Posted on February 15, 2016November 15, 2019 by Jagoinvestor

Today, I want to help you understand how a mutual fund operates in layman language and how its structure looks like. How various entities come together to create a mutual fund.

There are a lot of investors who are new to mutual funds concept and they have just heard about the mutual funds. All they know about it is that some investors pool in their money in mutual funds, which invests in markets by a fund manager and they get very good returns. While that’s a simple explanation, I today want to inform you about the details and how things actually are structured, which makes mutual funds one of the safest instruments and highly professional, and leaves almost no chance of fraud in mutual funds

So let’s get into the entities which comprise of a mutual fund.

1. Sponsor

The first entity is the “sponsor” of a mutual fund. It’s a person or the corporate body which initiates the launch of a mutual fund. You can see this person as the promotor of the company, who is the first one to think about the company. As per SEBI, the sponsor should have a good reputation, great professional competence and they should be financially sound to become a sponsor.

They also need to have at least 5 yrs of experience in the financial services industry and should contribute 40% of the AMC net worth (we will soon see what is AMC). The sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the schemes beyond the initial contribution made by it towards setting up of the mutual fund

2. Trustees

The next thing you should know is that a mutual fund is created as a public trust and registered with SEBI. The sponsor appoints the trustees which look after the trust and they are the owners of the mutual fund property and assets.

However, the role of the trustees is not to manage the day to day affairs of the mutual fund, but only to regulate the mutual fund. They make sure that everything is happening as per regulations and the money invested is managed as per the objectives set by the mutual fund. The trustees act as a protector of unitholders’ interests.

As per the SEBI rules, At least 2/3rd of the directors of the trustees have to be independent directors who are not associated with the sponsor in any manner.

3. AMC (Asset Management Company)

Now comes the main thing.

AMC means the Asset Management company which actually manages the investor’s money and takes the decision of investing the money. The AMC is appointed by Trustees. AMC does the fund management and charges a fee for their services which is borne out of the investor’s money (that’s why expense ratio is there)

The AMC has to be approved by the SEBI and the Board of Directors in AMC must have at least 50% of Directors who are independent directors. So an AMC functions under the supervision of SEBI, Trustees and the board of directors.

Some rules set by SEBI

As per rules set by SEBI, An AMC (also referred to as fund house) can’t use the same broker to buy more than 5% of the securities. Just like we use a trading account to buy and sell securities, in the same way, an AMC uses a broker to buy and sell securities in large quantities, but they can’t buy a bulk quantity with the same broker, which makes sure they can’t have any “arrangements” with one of them.

So when you say HDFC Mutual Fund, you are referring to the Trust. The AMC for HDFC Mutual Fund is “HDFC Asset Management Company Limited”. So all the investment decisions of buying and selling the securities are taken by the AMC and not HDFC Mutual Fund (the trust)

Below you can see the details of trustees, sponsor, and AMC which I took from the HDFC Mutual Fund website

AMC is responsible for floating a new mutual fund scheme, and inorder to do that, they have to follow rules prescribed by SEBI and require the signature of the trustee.

So the HDFC Top 200 fund was floated by HDFC Asset Management Company Limited (AMC), but owned by HDFC mutual fund (the trust). It is the AMC that hires all the fund managers, IFA (agents) who helps in sales, and all the employees who work at the AMC offices.

4. Custodian and Depository

Here comes the interesting part.

The securities which are bought and sold by the fund manager, it’s actually not in the custody of AMC, but another entity called custodian or the depository participant. It is registered with SEBI and has the access to the securities.

A custodian keeps the physical securities (like GOLD and any physical certificates) and any Demat stocks/units are stored at Depository level.

A custodian is also responsible for keeping an eye on all the corporate actions like when is a stock declaring dividend, bonus issue etc in the stocks where fund has invested. So an AMC just focuses on the decisions like buying and selling and all the task of managing, storing of actual securities happens at the custodian level

Note that an AMC can have more than one custodian for various kinds of securities, like in case of HDFC AMC, the securities are with HDFC Bank LTD (one of the custodians), but for their HDFC Gold ETF, the custodian is Deutsche Bank A.G which stores physical gold.

As per regulations, Sponsor and the Custodian must be separate entities which make the mutual funds a very safe instrument and fraud is almost impossible.

5. Registrar and transfer agents (RTA)

Finally, comes to a very important entity called as Registrar and Transfer agents(RTA), which are appointed by AMC

These RTA are the entities that carry out all the clerical work like processing of applications, processing KYC of investors, issuing unit certificates, sending refunds, processing redemption orders etc. So you must have heard about CAMS and Karvy, which are the RTA agencies for mutual funds. So some AMC’s give contract to CAMS and other AMC’s have given it to Karvy. The RTA charges a service fee for the work they do.

So for example, HDFC, Birla, ICICI, SBI are serviced by CAMS, whereas Reliance, UTI, Axis mutual funds have chosen Karvy as their RTA. Note that all the AMC offices also carry out the clerical tasks like if you want to change the address in your mutual funds or add a nominee, you can go to AMC office directly or their RTA

Below is a snapshot of what all mutual fund companies servicing is done at CAMS at the time of writing this article

This completes the high-level structure of mutual funds. There are various other small entities that are sub-parts of these bigger entities but let’s not get into that as of now.

By looking at the above structure you can understand that a lot of care has been taken to design the mutual funds and at various points, the conflict of interest does not arise.

Are you investing in mutual funds?

Mutual Funds are wonderful products and especially for long term goals. You can now start your mutual fund’s journey with Jagoinvestor if are planning to invest in mutual funds.

The Big Day Has Arrived – Jagoinvestor School Launches today

Posted on February 1, 2016November 15, 2019 by Jagoinvestor

Our biggest dream gets fulfilled today. We are once again ready to serve investor’s community with our brand new offering jagoinvestor school.

There has been enough of text articles on our blog (which will continue as it is). We now want to go to the next level and for those who are committed to going to the next level, for then we will do more of webinars, video programs and online classrooms where learning and sharing insights will make personal finance FUN.

We both (Manish and Nandish) will give our best to the school members, but we will also get the best of the best people to share their knowledge, wealth creation ideas and strategies with school members.

What is Jagoinvestor School?

Jagoinvestor School is all about becoming a dedicated student of wealth. The school will help you to fall in love with the overall process of wealth creation. For the next few years we are going to dive deep into the school. We will dedicate our time, energy, knowledge and skills to empower members of the school.

We will teach and share everything that we have learnt so far from the time we started this blog. We will stay committed and will also generate high level of commitment amongst all school members. We will demand action and will ask members to do the required work.

The school is not for the faint of heart, it is for those who are committed to creating wealth. The foundation of the school will be FUN, ACTION and COMMITMENT.

Why you should join the school?

If you have benefited from the blog and want to learn more about personal finance, then come and be a part of our school. If you want to create an extra-ordinary financial life you should immediately join the school. The school is for those who want to get accountable in the area of money, who wants to work on their financial life and someone who wants to take their financial life to the next level.

It is our promise you will see a dramatic shift in your discipline level and will start to enjoy the overall process of wealth creation.

Here are the 10 things you will get in Jagoinvestor School

360° evaluation report on your financial life
Access to DIY program “100moneyactions”
Access to 50+ Video/Audios under Wealth Club
Monthly Webinars/Classrooms on Various Topics
23+ Excel-based Tools & Calculators
Monthly Reporting & Tracking Structure
Start SIP for your goals with Jagoinvestor
Discount on Workshops & other Services
Access to Network of Trusted partners
3 ebooks on Signup

Join School Now !!

Why we love teaching and making a difference?

Because there are so many people waiting to get help in their financial world and when we help someone to reinvent their financial journey it fills our heart with a lot of fulfillment. In the last 2 months, we have received 100+ thank you emails, out of which we are sharing some of them below.

We are not sharing their names and these are personal sharing written straight from the heart. The sharing done is not about us it is about investors who have rigorously worked on their financial life and created an amazing financial life for themselves.

Success Story/ Sharing 1#

[su_note note_color=”#F1F1C7″ text_color=”#333333″]

Hello Manish and Nandish,

Hope you are doing great. After having consulted with you ~3 yrs back through “Financial Coaching” I had seen a phenomenal change in the way I treat things in lieu of financial discipline. I truly have to appreciate your efforts in transforming me like this.

I now am relatively confident that I will be able to tackle things much more carefully when it comes to policies / ULIPs etc.

I now want to go with you again, to review my new financial goals and the path I am taking to achieve those. Please let me know what is correct means to go over this with you. Please do revert at your convenience. Looking forward to a positive reply from you.

[/su_note]

Success Story/ Sharing 2#

[su_note note_color=”#F1F1C7″ text_color=”#333333″]

Dear Manish/ Nandish,

Wishing you and your families a New Year 2016 Filled with good health, peace, and happiness.

Please find below a small write up on my personal finance journey in 2015.

2014

One of my colleagues told me about the Jagoinvestor website.
Began reading the articles written by Manish/Nandish.
I had huge credit card bills during that period. The articles helped me take the right steps and gave me a perspective.
Planned and worked towards getting debt free on the credit card bills in 2014.
I had improved on that front but wanted to get better and make my financial life stronger and be more in control.
Dropped an email on 20^th Dec 2014 wanting to connect with Jago and avail of their services/support.

2015 :

Since I was travelling on a business trip, Set up my 1^st call with Nandish on Sat 24^th Jan 2015 around 11:00 AM.

Nandish shared a couple of docs that entailed the complete flow of our association e.g. Data Sheets, Health Checkup Data Sheet > Final Report, etc..
Nandish invested some time in going through my data sheet and reverted with a Basic Financial Plan. Along with the plan were simple action check-list for taking actions for me.
Now commence the journey to bettering and being more in control in my financial life.
- Learned on what basis were the most important and had to be in place.
- Corrected and improved on the wrong choices and products I had made in the last 10 yrs.
- Which never took into consideration inflation and may other critical areas that need to be looked at.
Based on Nandish/ Manish guidance we worked on strengthening the foundation in the below areas
Term Plan
Medical Insurance for Family
Investments (SIP)

Attended the Jago workshop held in Mumbai and personally met Manish and Nandish and various individuals like me, It boosted the confidence all the more, to stay focused and consistent on this journey leading to financial freedom.

It has been a slow and steady journey to correct the errors of the past and dig and build a New and strong financial foundation for the future for me.

I’m very happy about the progress we have made in 2015, this would not have been possible without the guidance and support from Manish and Nandish. Based on my personal experience I’ve recommended the same to my various friends and even my sister who is working with the Jago team.

Looking forward to keeping on bettering and strengthen the foundation each year and being more financially free and continue this associate with Manish and Nandish.

Not sure if I manage to cover all the points, as I just keep writing impromptu

[/su_note]

Success Story/ Sharing 3#

[su_note note_color=”#F1F1C7″ text_color=”#333333″]

Starting the year 2015, I made a promise to myself that I will not ruin my sleepover money management issues. To fulfill this, I had taken the necessary steps towards being a better money manager of our(me & my husband’s) hard-earned money, i.e. meeting Nandish & Manish.

I was following the blog from 2014 but I was always having doubts in mind: Does these process really work and will it work for me as well? I attended a one day workshop that is held in Pune by Jagoinvestor and that was the turning point of my life.

After the workshop, I decided to take help from Manish & Nandish and hand over all my worries to them. I did it and I can really sleep better now.

For 2016, my goal is to be a better organizer on maintaining Financial documents and do the remaining planning part of it.

[/su_note]

Success story/ Sharing 4#

[su_note note_color=”#F1F1C7″ text_color=”#333333″]

Hi Nandish, happy new year to you and your family too.

2015 has been a great year for us. We continued on our monthly targets and never missed any. We saw great growth coming this year and we are completely debt-free this year. Though we need to improve on two fronts. Our expenses have increased a lot now after the kid.

So we need to be careful to plan nicely and stick to it. On the heath front, some health issues are cropping in. So we need to exercise much more and much harder.

Hope this was good information.

[/su_note]

Success Story/ Sharing 5#

[su_note note_color=”#F1F1C7″ text_color=”#333333″]

The year 2015 gave me a better awareness of why Financial Management is important. In terms of finances throughout the year, the inflow was barely able to meet the outflow. Midway through the year, the realization dawned that my finances are more tilted towards Real Estate and questions on liquidity, gain in the context of a weak Real Estate market.

I was sincerely praying that I get proper guidance on how I should be saving for my next 5-10 Years. I do not know if I should call it as luck or prayers answered, I somehow got a chance to read Manish’s book “16 Financial Principals every investor should know” which was an eye-opener pointing me to the mistakes I have made in my investments.

It did not take time for me to connect with Jago Investors and have been interacting with Nandish. I feel I am in safe hands and hopeful that the year 2016 will be a year of consolidation and growth in my financial journey.

[/su_note]

The School is about creating SUCCESS STORIES:

I shared a few stories with you because jagoinvestor school is all about creating success stories. Every month we will encourage school members to learn and to take action in their financial life. It is our promise if you will surrender to the structure of the school your financial world will go to the next level. You can visit a dedicated page of school to learn more about the elements of school.

Invitation to join the school

We invite readers, Asset Management Companies, Insurance companies, and various other financial institutions to get associated with this school. From the bottom of our heart, we invite each one of you to be a part of the school, this is one of the best choices you will be making as an investor.

We would like to join hands with some Asset Management companies or organizations to make sure the school reaches maximum investors.

The money generated from the school will be used for the expansion of the school, we will one-day eradiate financial illiteracy and every Indian investor will be a proud jagoinvestor. We need your love, blessings and encouragement, share about school with your loved ones and see that you join the school at the earliest.

If you have any questions about school feel free to ask in the comments section.

Join School Now !!

Love you all, see you at the school.