Should You Withdraw Your EPF Before Retirement?

In the year 2020 due to the Covid-19 outbreak, there are many people who had lost their job or were to be victims of a salary cut. Under such a situation, managing the monthly expenses was very difficult. Especially when you have fixed monthly commitments like a home loan or car EMI. The government had relaxed the norms of withdrawing EPF money to cover these expenses. Covid was an unexpected event and there are other events where you can withdraw your EPF money. But should you withdraw your EPF before retirement? Let’s see all the aspects of early EPF withdrawal and conclude whether it is a good idea or not.

What is EPF (Employee Provident Fund)?

Let’s first briefly understand what is EPF and why it is deducted from the salary. The EPF is the part of an individual’s salary which is deducted from the monthly salary and deposited in the provident fund. The purpose of an EPF account is to save money compulsory for your retirement needs.

The accumulated funds in the EPF account earn interest on the amount deposited in the account. The interest rates are somewhere between 8% to 8.25% yearly. This rate keeps on changing every quarter.

The contribution of 12% of your basic salary is deducted from the salary and the employer also adds another 11% from your CTC (cost to the company). So a good amount of your salary is being deducted and deposited into the EPF account every month.

There are certain events when you can withdraw the EPF account before you get retired. These events are like a house purchase, marriage, children’s education, further study etc. You need to produce the relevant proof of the event while withdrawing the money from the EPF account.

Should You Withdraw Your EPF Before Retirement?

Now let’s check whether you should withdraw your EPF before retirement or not. To conclude this, we first need to compare its return on investment with other investment options like fixed deposit, mutual fund, direct equity, gold etc.

Investment Option15 Years20 Years25 Years
Mutual Fund (Equity)12.5%13.02%15.3%
Direct Equity (Nifty 50)14.2%14.18%15.0%
EPF Interest Rate8%9%12%

Below is the EPF interest rate from the Year 1952 to 2022


So as you can see in the images above, the interest rate on EPF accounts is decreasing from 12% to 8%. Secondly, as you can see in the comparison chart, the interest earned on the EPF account is the lowest among all investment options.

Then why should you invest in the EPF account every month if the interest earned is lesser than other options? Well, there are government norms on the salaried people to compulsory have this deduction from the salary. The only advantage of investing in EPF is the accumulated money is tax-free when you withdraw the same after retirement.

But against the tax, you are losing a big opportunity of investing it into other investment options and earning higher returns. Imaging the same money every month you are investing into mutual funds and earning 12% average returns on your capital, what would be the corpus you would generate by the time you retire?

An average person has a job span of around 35 years till he/she gets retired. So the amount which is deducted as EPF and earns you only 8% /year, has the potential to fetch you around 12%/year. Obviously, you would have to pay tax on the earnings from mutual fund investment. This tax amount would be around 1% of your earnings. So even if you pay the tax on the earnings, you would be better off as compared to the earnings of 8% from the EPF account.

Do you know what the government is doing with the money deposited into the EPF account? They are investing the same money into government bonds and other investment options. They also give you a loan against your EPF amount with a 1% margin. Some portion of the EPF fund is invested in the equity market for a higher return.

I strongly recommend not to keep your hard earn money into EPF and earn only a return which is at par with the inflation rate. 1 crore, 2 crores, whatever will be the amount you will accumulate for retirement, would not be sufficient as inflation would eat up the gain.

Instead, withdraw your money from the EPF account and invest them into mutual funds for higher returns. You need discipline and patience in investing and you would be able to create wealth for your future.


I am a stronger believer that one should not invest in any of the government saving schemes like PEF, Sukanya Samriddhi, NSC etc. They are very low-return investment options. If you have the discipline and patience, you can invest your hard-earned money into different mutual funds, direct equity, gold, real estate etc. and earn a higher return on your investment.

So according to me, you should withdraw your EPF before retirement and invest the money in other avenues which can give you higher returns. Let me know in the comment box below if you want to know about the other investment options. If you like this article, please share the same with your family and friends.

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