The Employees' Provident Fund (EPF) is a government-backed savings plan that helps individuals build a secure retirement fund. Employees contribute to this fund during their active employment years to build a financial cushion for old age.
After retirement, EPF savings can support daily expenses and maintain a stable lifestyle without dependence on others. It also promotes long-term financial independence by encouraging disciplined saving.
EPF is one of the most reliable investment tools and currently offers 8.25% returns per annum. This is more attractive than fixed deposits, where returns are lower. Both tools have their own purposes and are designed for different financial goals. While EPF may not be as flexible as FDs, it still has provisions for partial withdrawals, allowing investors to have control over their money.
Among all investment tools, EPF tends to have one of the lowest contributions as it is tied to one's basic pay of the total monthly salary. Still, disciplined investments into this scheme can help one create a corpus of nearly Rs 80 lakh.
Here's How:
Assuming that one invests Rs 5,000 per month in their EPF, they can end up with a significant corpus of Rs 80 lakh by the time they retire. For this calculation, we need to assume regular investments are being made for 30 years.
Monthly amount: Rs 5,000
Investment duration: 30 years
Rate of return (current): 8.25%
Invested amount: Rs 18,00,000
Estimated returns: Rs 60,95,002
Total value: Rs 78,95,002
ALSO READ: Debt Investing Explained: Rates, Risk, And Returns Decoded For Investors
How To Increase EPF Contribution?
Employees need to understand that EPF is not a pure compounding investment product like market-linked funds. In this scheme, the interest is reviewed by the government periodically and can vary.
Contributions are generally 12% of basic pay, capped at Rs 15,000. Employees can opt for higher savings through the Voluntary Provident Fund (VPF), which is an extension of EPF. This can be done by making a formal request to your employer. One of the best features of this scheme is that interest earned is tax-free if the employee's own contribution is under Rs 2.5 lakh per financial year.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
