Friday, October 19, 2012

Can I transfer my PF Account to my new Employer?

One of the most popular articles in my blog is about withdrawal of Employee Provident Fund money from our own EPF Accounts. Usually when we switch jobs, our PF Account is closed by our old employer and then our new employer actually opens a new account for us. Though we all may find the sudden surplus cash coming in handy for our day to day expenses, the purpose of the PF Account is not to meet your cash requirements while working. The purpose of the PF Account is to help you have a comfortable retirement. Moreover, if you switch jobs within 5 years of joining the company and close your PF Account, the withdrawn amount is fully taxable. So, we have two great reasons as to why we must not WITHDRAW our PF Corpus when we switch jobs.

Now, what is the alternative?

Transfer the PF Account from your current employer over to the New Employer…

I know that 99% of you know that such an alternative exists and so, just bear with me for the benefit of that 1% who does not/did not know this. Now, you may be asking me, did you write this article to tell me something I already know about?

Actually, in many private sector organizations when someone joins their organization, they suggest the PF amount from their previous employment be withdrawn. They do this to avoid a lot of paperwork at their end to coordinate and track the transfer of your PF Account from your old employer. But, they are supposed to do this for you and you have every right to request them to get your PF Account transferred from your old employer. Don’t hesitate. It is your money as well as their duty. So, go ahead and tell them to get the account transferred.

Real Life Experience:
When I switched my first job, I did not know that EPF withdrawals before 5 full years of service was taxable. My new employer said that getting the PF Money transferred was a hassle and I also had some commitments. So, I happily withdrew the money and bought a PC for home. In June when I got the form-16 my tax liability said I had to pay one third of the money that I had accumulated in the 3+ years of service. Am not just making this up to convince you to get your PF money transferred to your new job. I am just sharing my real life experience and the decision is entirely yours!!!

Some Points – In Favor of getting the PF Account Transferred:

• Transfer of money from your old PF Account to the new PF Account happens in less than one month (The withdrawal takes 2 to 3 months)
• The old accumulated money continues to earn interest and any subsequent addition too adds to the interest earned
• You need not pay any taxes on the money accumulated in your old PF Account

Now, a smart guy like you may be thinking – What if, I keep my old PF account active until I complete 5 years of service and then submit a withdrawal request? I wouldn’t be paying taxes plus I would’ve earned interest for that time period as well. So, it works just like a fixed deposit.

Did you just think of this???

Well my friend that is a brilliant plan. Unfortunately according to the latest PF Regulations, any PF Account that is inactive for a period of 3 years stops earning interest. Plus – having two active PF Accounts is not right and the authorities may give you a very hard time if they find out if you have multiple PF Accounts.

So, either close your old PF account and withdraw the money or get it transferred. These are the only two choices you have to avoid complications.

Steps in Getting your PF Account Transferred:

The following are the steps in getting your PF Account from your old employer to the new account.

1. Join your new Organization and get the new PF Account opened
2. Get the PF Account number from your HR/Finance Department
3. Fill up the “Form 13” (This is the same form for PF withdrawal as well) with details of your previous employer, your old PF Account number etc.
4. Sign the form and hand it over to your current employer’s HR/Finance Department
5. Your current/new employer will fill in the details of your current employment, get is signed by the authorized signatory of your organization and then submit it with the regional PF Office for transfer
6. The regional PF office will contact your old employer and then effect the transfer
7. In around 30 days, the money from your old account should be available in your new PF Account.

What happens if my past employer is Unavailable?

In the rare scenario that your old employer is unavailable (They closed down or for whatever reason) you can still get the Transfer/Withdrawal completed.

In such a case – the employee (you) has to submit an identity proof (PAN Card, Voters ID Card, Ration Card or Passport) and proof of residence (Copy of electricity bill, landline phone bill or driver’s license) must be submitted along with the form.

The Withdrawal/Transfer request is usually attested by both the employers (the old and the new) involved. In this case, if the old employer is not around to attest it you can still get the money transferred with the attestation of your current employer.

Where can I get the PF Forms?

Just go to this link and download the forms, fill them up and take things forward

Things to Remember when filling up the form:

1. Fill in all details like name, date of birth, address etc. legibly without any overwriting or errors
2. Sign the form in a consistent manner – if the signature does not match the original sign submitted at the time of account opening, our request could be rejected
3. If your PF Account number is incomplete or incorrect, the request will be rejected
4. If your Bank account details are incomplete or incorrect, the request will be rejected
5. Your date of joining/resignation must match the PF Office records (which will match the employer records). So, enter only the correct dates

Remember – We are dealing with a government department here. So, even fully filled and complete forms may get delayed for no apparent reason. If you submit an incomplete form, there will be all the more reason for delays for rejections.

Hope this article was of use to you. Leave your comments/queries and I will try to answer them as best I can.

Wednesday, October 10, 2012

What happens to the shares of a listed company, when it goes bankrupt?

Today, while I was reading the news, I read the fact that Kingfisher Airlines shares have fallen again today (just like the past few days) and it looks like things may not improve for the debt-ridden Airline. One thing struck me while I was reading that news, What would happen to all the shareholders of Kingfisher Airlines (Which is a publicly listed company in both NSE and BSE in India) if Mr. Vijay Mallya were to give-up hopes on this airline and declare bankruptcy??

Well, the purpose of this article is to find out what exactly happens during such a scenario, when a publicly listed company goes bankrupt.

Occasionally, publicly listed companies go bankrupt. Remember Lehman Brothers? When a company goes bankrupt, its shareholders (Who are considered part owners of the company) may or may not get anything. However, the answer is multi-fold. Read on!!!

The Value of the Stock/Share:

The Share/Stock will become worthless and technically nobody will be willing to buy the shares of a company that is bankrupt, so, you cannot sell them in the Market. So, the value of the stocks you own (Irrespective of the number of shares you own) will be


Is there any hope?

Actually speaking yes. When a company declares bankruptcy, it will be required to sell all of its assets and pay off all debts. As part owners of the company, it is safe to assume that the company is in-debt and has to repay us. The usual order of debt repayment will be as follows:

1. The Government
2. Financial institutions
3. Other Creditors (i.e. suppliers and utility companies)
4. Bondholders
5. Preferred Shareholders and
6. Common shareholders

In real life, Common shareholders often receive nothing at all, as there is usually very little left over once a firm has paid its debts. Think of it this way, if the company had enough money to pay all its debts, do you really think it will go bankrupt???

How Much Money will I get?

Let us say, you own 0.5% shares of XYZ Corp that declared bankruptcy. Let us also positively think and assume that Rs. 10 lakhs was left over after XYZ Corp paid off all its debt (in the top 5 categories). So, this 10 lakhs will be shared equally among the shareholders based on the % holding of each shareholder. So, since you own 0.5% you will get Rs. 5,000/-. If I had 3% shares of XYZ Corp, I will get Rs. 30,000/-

Remember - Here, the price at which you purchased the shares is not considered. Only the % holding of shares, as compared to the overall outstanding shares of the defunct organization matters. You could've bought the shares at Rs. 100/- per share and I could've bought them at Rs. 10/-, it does not matter. At the end of the day, whatever money remains - after paying off all other higher ranked debtors, will be shared among the common share holders based on the number of shares they hold.

Some Last Words:

Buying a company's share is a big risk that we are taking. When we buy a share, we assume that the owners will manage the company well, boost revenue, make profits and keep us shareholders happy. Sometimes, it so happens that they fail and make the lives of their shareholders miserable and cause losses to their investors. So, make sure you research the company you buy, thoroughly to avoid unexpected shocks and losses...

Happy Investing!!!

Disclaimer: The Article does not suggest that Kingfisher Airlines is going to declare bankruptcy. Nor is this article a buy or sell advise about the shares of Kingfisher Airlines. While reading a news article on the internet, about the stock's daily price movement, the author got the idea to write about what would happen to the common stock holders if a listed company were to declare bankruptcy and that's all
© 2013 by All rights reserved. No part of this blog or its contents may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the Author.


Popular Posts

Important Disclaimer

All the contents of this blog are the Authors personal opinion only and are not endorsed by any Company. This website or Author does not provide stock recommendations. The purpose of this blog is to educate people about the financial industry and to share my opinion about the day to day happenings in the Indian and world economy. Contents described here are not a recommendation to buy or sell any stock or investment product. The Author does not have any vested interest in recommending or reviewing any Investment Product discussed in this Blog. Readers are requested to perform their own analysis and make investment decisions at their own personal judgement and the site or the author cannot be claimed liable for any losses incurred out of the same.