EPF vs stock market: EPFO highlights 5 key differences every investor should know

The Employees’ Provident Fund Organisation (EPFO) has explained how the Employees’ Provident Fund (EPF) differs from stock market investments, highlighting the role of the EPF in long-term retirement planning. The EPFO says that from mandatory contributions and employer contributions to tax benefits, pension, insurance and investment risk, the two options work very differently.

The EPFO, in a video posted on its official YouTube channel, says that having an EPF account is mandatory for employees of institutions where the EPF Act applies and whose salaries are up to the wage limit of Rs 15,000. Money can be withdrawn from an EPF account only for prescribed purposes. On the other hand, share market investments are fully voluntary and allow their investors to withdraw the amount anytime, highlights the EPFO.

The EPFO says that under the EPF scheme, contributions are made from both the employee and the employer. Whereas, in share market investments, it is entirely the investor's money that is invested. The employer's mandatory contribution gives the EPF member additional and assured benefits. On the other hand, share market investors don’t get any such additional contribution from anyone, says the EPFO.

The EPFO highlights that EPF contributions are monthly, which makes it mandatory savings for its subscribers, whereas investments in the share market are entirely voluntary. The EPF helps an account holder earn interest at a stable rate declared by the government. However, in the share market, returns carry higher risk and depend on market performance, the EPFO states.

In the EPF, contributions, interest, and withdrawals are tax-free, says the EPFO. But if you sell shares and earn profit, capital gains tax applies on the returns.

The EPF also explains benefits of pension and insurance. Eligible employees can also receive benefits under the Employees’ Pension Scheme (EPS). The Employees’ Deposit Linked Insurance (EDLI) scheme also provides insurance benefits subject to the applicable rules.

Whereas, in the share market, there is only a transfer of investment value. Social security benefits are not available in the share market, says the EPFO.

The EPF is operated and regulated by the central government, while, despite being under market regulators, the share market is not free from price risk. The EPF builds a stable, secure and reliable corpus in the long term. On the other hand, returns in the share market remain uncertain, points out the EPFO.