With new-age concepts like financial independence, retire early or FIRE, navigating routes to take and tools to save for retirement feels like a maze.
For many salaried individuals, one powerful tool remains the Employee Provident Fund. Viewed as a mandatory deduction, EPF, according to experts, is a great tool for long-term savings. Understanding its mechanics and avoiding common mistakes can significantly boost wealth creation as well.
Long-Term Compounding Through EPF
EPF is usually a percentage of the salary that is deducted from the employee's paycheck. This contribution is also matched by the employer.
"EPF operates with a specific allocation, out of the employer's 12% contribution, 8.33% flows into the Employee Pension Scheme, while the remaining 3.67% is directed to your EPF account," explains Sharad Tandon, founder of Invest at Ease.
"Allowing it to compound is key for maximum returns over the long term," echoes Santosh Joseph, founder of Germinate Investor Services. "EPF effectively hard-codes your investment with a ring fence that encourages long-term compounding, making it a default savings tool for many."
Steer Clear Of These Common Mistakes
Salaried individuals who are taking a gap or switching jobs need to be mindful of contribution gaps. Tandon warns that if there is a stoppage in EPF contributions for 36 months, the compounding interest may no longer apply.
"During job changes or sabbaticals, consider a side gig to maintain regular income and avoid withdrawing your EPF," he advises.
One common mistake that Tandon flags is employees wanting to withdraw their contribution while changing jobs. Joseph also weighs in that while some may wish for lower EPF contributions for a better paycheck, but little do employees realise they are missing out on better compounding.
How To Check Your PF Balance
One can visit the EPF portal, click 'e-Passbook,' sign in with the UAN, password. After entering the captcha, select 'Passbook' and your 'Member ID' to view the balance.
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