Q. I am 28. I worked for a private employer until June 2019 for almost 4 years and had a PF account there. I switched to a statutory organisation in July 2019 where only the NPS option is available. Kindly advise whether there is any way to link /transfer my PF funds to NPS without withdrawal?
A. Though withdrawals from the Employee’s Provident Fund (EPF) account are generally tax-free, the employee should have completed 5 years of continuous service to avail of this tax exemption. However, in your case, as you have completed only 4 years of service with your old employer and your current employer does not offer EPF, you may not fulfil the continuous service condition.
Therefore, transferring your current EPF balance to the National Pension System (NPS) would be a good move, as such transfers do not attract tax.
A transfer from a recognised provident fund such as the EPF to the NPS is allowed by the PFRDA (Pension Fund Regulatory and Development Authority) rules. The balance you transfer will not be subject to tax for the relevant year. Nor will it be reckoned as a fresh investment into NPS eligible for tax benefits under section 80C.
To effect such a transfer, you will need to open a Tier 1 account with NPS. You will then need to place a request with the EPF or recognised provident fund run by your old employer for the transfer. Your transfer is required to be initiated by the provident fund’s office. If you are currently with a government organisation, EPF may be willing to issue a demand draft or cheque in your name, citing your NPS PRAN number.
The process is detailed in this PFRDA notification of 2017 https://www.pfrda.org.in/writereaddata/ links/nps%2006032017a60288f1-fa19-493f-bb8d-cb9a0b81e513.pdf.
Q. I am 22 and a fourth year student. I earn ₹7,000 a month, giving tuitions. Is this the ideal time for me to invest in stock market? When should I apply for a credit card to build my CIBIL score?
A. Before starting, it is important to understand that equities are a risky asset class, where you can very well lose your capital. This is especially true of volatile times like today when risks ranging from rising interest rates to foreign investor pull-outs are leading to falling stock prices.
If you are simply attracted to the high returns given by equity funds in the recent past, you should be aware that these returns can vanish very soon in a volatile market. If you cannot take capital losses on hard-earned savings, there are other investment options available like bank recurring deposits or fixed deposits, post office schemes and debt schemes from mutual funds which you should explore first.
However, if your intent with equity investing is to build your nest egg gradually over a 10-year time frame or more, the best route for beginners is to use a Systematic Investment Plan or SIP where you invest small amounts every month into an equity fund. We suggest you start SIPs in any index fund that tracks the Nifty50 or Nifty100 index. Such funds will help you own the top 50 or 100 stocks in the Indian market. Given your limited income, do not invest over more than 10% of your pay or savings in equities. If your time frame is 10 years plus, you can start right away.
You are quite right to want to build up a credit score for your future needs. Lenders are generally unwilling to give credit without a credit score, and a credit score cannot be built up without borrowings! Getting approval for a credit card from a bank may be tough at this stage. However, you can try using lines of credit for small purchases from newer fintech players who have more relaxed criteria. Alternatively, you can build up a credit history by buying a small-ticket consumer good - like a low-priced mobile phone - on an EMI from a NBFC. Regular settlement of your phone bills towards your post-paid connection can also help. If you take such loans, do make sure to start with very small amounts and to not fall into a debt trap. Ensure you service the debt on time to build up a credit score.