These are a set of queries raised by ET Wealth readers, which have been answered by our panel of experts.
I retired at 53 and have Rs 2 crore in my EPF account. I understand that I can continue to earn interest on the balance for up to three years even without fresh contributions. What are the tax rules for this? My monthly expenses are Rs 3 lakh. I want to optimise returns and get steady income.
Rushabh Desai Founder, Rupee With Rushabh Investment Services: EPF interest continues to accrue for 36 months after you stop contributing (i.e,after retirement). After that, the account becomes inactive and interest stops. The interest earned on your EPF balance after cessation of employment is fully taxable at your applicable slab rate. Should you stay in EPF for three years? No, as post-tax returns will be unattractive, and your money will be locked and illiquid.
Since you need an income of about Rs 3 lakh a month, consider a three-bucket strategy. Allocate Rs 50 lakh to fixed deposits and debt mutual funds to cover two to three years of expenses. Invest Rs 80 lakh in dynamic asset allocation or hybrid mutual funds to meet medium-term needs over the next three to seven years. The remaining Rs 70 lakh can be invested in flexi-cap equity mutual funds to generate long-term growth and help beat inflation over a seven-year-plus horizon. Assuming a blended annual return of 9-10%, this Rs 2 crore corpus could generate roughly Rs 20 lakh a year towards your expenses. At this withdrawal rate and return assumption, the corpus is likely to last for about 15 years. This strategy is sustainable only if it is supplemented by other income
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