Retirement planning is one of the most important objectives for working professionals. A substantial retirement corpus ensures safety and peace of mind in your golden years.
The EPF (Employees' Provident Fund) scheme remains one of the most reliable ways to build substantial retirement wealth in India. The government-backed retirement scheme, managed by the Employees' Provident Fund Organisation (EPFO), lays out mandatory contributions from both the employee and the employer every month during the entire service period. Due to the compounded interest and regular salary appraisals, even small contributions can grow into a sizeable retirement corpus over the years, making the EPFO one of the most preferred retirement investment options for salaried employees in the private sector.
As per existing rules, an employee is required to contribute 12% of the basic salary and dearness allowance (DA) every month to the EPF account. The employer contributes an equal amount, out of which 3.67% goes to EPF. The remaining 8.33% from the employer's contribution goes to the Employees' Pension Scheme (EPS).
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Even on a modest monthly salary of Rs 50,000, long-term participation in the Employees' Provident Fund (EPF) can potentially deliver a retirement nest egg of around Rs 2.5 crore, without the need for risky investments or complex financial products.
Let's see how your EPF fund will grow based on a monthly basic salary and DA of Rs 50,000.
Your contribution: 12% of Rs 50,000 = Rs 6,000 per month, goes entirely to your EPF account.
Employer's contribution: Also 12% (Rs 6,000), but split as:
8.33% toward Employees' Pension Scheme (EPS), capped at Rs 1,250 per month.
The balance (3.67%, or Rs 4,750 in this case) goes to your EPF account.
Total monthly addition to your EPF account: Rs 6,000 + Rs 4,750 (employer's) = Rs 10,750.
EPF Calculation
Monthly contribution: Rs 10,750
Tenure: 35 years
Returns: 8.25% per annum (current interest rate)
Total investment: Rs 45.15 lakh
Estimated returns: Rs 2.09 crore
Maturity corpus: Rs 2.54 crore
In practical terms, with an annual salary increment of 6–8% in a career span of 30–35 years (starting at age 25–30 and retiring at 58–60), the compounding effect turns modest monthly contributions into a large corpus.
As your career progresses, your basic salary increases. A 10% annual hike means your contribution doesn't stay at Rs 6,000 per month. The EPFO calculates interest monthly, but credits it annually. This "interest on interest" effect accelerates returns in the final years of your service period.
When changing jobs, it's advisable to always transfer your UAN (Universal Account Number) and the balance to the new employer. Closing the EPF account resets the compounding interest cycle, which may impact your overall returns.
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