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Should I Use EPF Money To Buy A House?

In our view using EPF savings to fund your home buy is not a smart decision. You should dedicate EPF to provide you a cash flow in retirement.

Now, you can withdraw 90% of PF savings for buying flat, land” - This headline in a leading newspaper got a lot of us thinking. Provident Fund Money was and is almost holy for much of India. For long it was the only retirement corpus people had and relied on it as such.

Recently, the government notified new rules stating that EPF members like you and I (if we have been subscribed to EPF for at least 3 years) can use up to 90% of our EPF savings (see notes below) to either pay a lump sum or towards EMI payments for a home buy.

So is it good news?

You can now, technically, use almost all of what you have accumulated in your EPF account (see note below) to buy your home. But is it a smart thing to do?

We believe EPF is an important part of your retirement savings. Your EPF corpus is designed to provide a regular income stream for you in retirement. The lock-ins built into EPF ensure that you see the money as a last resort or even unavailable to fund your short-term goals.

Now, this new ruling allows you take money away from your future to fund a purchase in the present.

Your home, if you live in it, is not an “investment” that can sustain you and your dependents. While we are not against purchasing a home to live in, this should not be done at the cost of your retirement savings. We recommend continuing your investments even while paying a home loan EMI.

In our view, therefore, using EPF savings to fund your home buy is not a smart decision. You should dedicate EPF to provide you a cash flow in retirement.

Note 1: There is a catch. You need to find at least nine other EPF account holders who belong to a cooperative society, which is registered under the law, through which you intend to purchase the home. The EPF money towards the lump-sum or EMI will be directly paid to the society and not to you.

Note 2: Earlier this amount was limited to 36 months of your salary (basic plus dearness) for buying a flat and 24 months for buying land, provided you had completed 5 years of service.

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