The Employees’ Provident Fund (EPF) is a retirement savings scheme in which about 28 crore accounts are being managed. This scheme is managed by the Employees Provident Fund Organization (EPFO). The purpose of this scheme is to provide financial security to the employees after retirement. Through regular investments in EPFs, employees can build a good corpus for their retirement. In this scheme, a part of the employee’s salary is deposited every month.
The special thing is that as much as it is contributed by the employee, the same is done by the company. The amount of contribution is determined according to the salary. Every year, the government decides the interest rate paid on the amount deposited in the EPF account. At present, EPF is getting interest at the rate of 8.25% per annum.
There is an advantage in maintaining investment
According to EPFO rules, partial withdrawals can be made from the EPF account if needed. But the entire amount can be withdrawn only after retirement. Despite the facility of partial withdrawal, if the employees do not withdraw the EPF money before retirement, then a good fund can be created. It is worth noting that no interest is calculated on the amount of PF account that goes to the pension fund.
How is the money deposited in the account?
For an EPF account, the employee has to contribute 12% of his salary, made up of his basic salary and dearness allowance. The same contribution is made by the company or employer on its behalf. Out of the company’s contribution, 8.33 percent goes to the EPS, i.e., pension fund, while only 3.67 percent of it goes to the EPF. In this way, by adding the amount of contribution of both, you can find out how much money will be deposited in your EPF account in a year. To make it easier for you to understand, we are giving the calculation of interest for different salaries here.
Calculation of interest on a monthly salary of Rs 15,000
Basic Salary + Dearness Allowance (DA) = Rs 15,000
Employee’s contribution to EPF = 12% of Rs. 15,000 = Rs. 1800
Company’s contribution to EPF = 3.67% of Rs. 15,000 = 550.5
Company’s contribution to EPS = 8.33% of Rs. 15,000 = Rs. 1249.5
Contribution to EPF account every month = 1800 + 550.5 = Rs. 2350.5.
How can a Rs 16,000 salary give you over Rs 1.5 crore corpus at retirement?
If your monthly salary is Rs 16,000 per month and you start investing at 22 years of age, then you can accumulate a fund of Rs 1,50,00,000 at retirement. Here is the calculation. On a yearly hike of 5 percent in salary, you can invest Rs 34,32,754 starting at 22 till retirement. On this, you will get an interest of Rs 1,19,08,242 at an 8.25 percent annual rate. The total maturity amount will be Rs 1,53,40,996.
