EPF vs (EPF+SIP): Which option may help you get higher retirement corpus; know expert calculations

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Employees’ Provident Fund (EPF) is a popular retirement scheme where the employee and the employer contribute to the employee’s PF account. While the employee can contribute a maximum of 12 per cent to their EPF account, the employer also has to contribute an equal amount to it. The minimum EPF contribution for an employee is Rs 1,800. The benefit of contributing to an EPF is that it falls under the Exempt-exempt-exempt (E-E-E) category, where deposits made up to Rs 1.50 lakh in a financial year, the interest earned, and the maturity amount are tax-free.

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The lock-in period in the EPF scheme is 60 years, and one can withdraw funds under certain conditions.

EPF provides an 8.25 per cent interest rate compounded yearly.

The employer’s contribution of 12 per cent is distributed in two parts.

While 3.67 per cent goes to the employee’s EPF account, 8.33% goes to the Employee Pension Scheme (EPS), which the employee gets back in the form of a monthly pension post-retirement.  

But what if two investors – A and B- both 25 years of age with a basic salary of Rs 25,000 each, contribute to their EPF in different ways? 

Here, A contributes 12 per cent of their basic salary every month and increases their contribution by five per cent till the retirement age of 60.  

On the other hand, B takes the route of EPF contribution and the systematic investment plan (SIP) in a mutual fund.

B strategises to invest 12 per cent of their basic salary every month in two schemes- Rs 1,800 in EPF till the retirement age of 60 and the rest of the amount in SIP, where they expect an average 12 per cent annual return (XIRR).

B will also increase their SIP amount by five per cent every year.

Given the two situations, who between A and B can build a large corpus? Know the difference through expert calculations.

Calculation for A’s Retirement Corpus 

Scenario 1	Scenario 1
Age	Year	Employee’s Contribution	Age	Year	Employer’s Contribution
Invested Value	FV	Invested Value	FV
25	1	43,200	46,764	25	1	43,200	46,764
26	2	45,360	53,153	26	2	45,360	53,153
27	3	47,628	60,415	27	3	47,628	60,415
28	4	50,009	68,669	28	4	50,009	68,669
29	5	52,510	78,051	29	5	52,510	78,051
30	6	55,135	88,715	30	6	55,135	88,715
31	7	57,892	100,836	31	7	57,892	100,836
32	8	60,787	114,613	32	8	60,787	114,613
33	9	63,826	130,271	33	9	63,826	130,271
34	10	67,017	148,070	34	10	67,017	148,070
35	11	70,368	168,300	35	11	70,368	168,300
36	12	73,887	191,294	36	12	73,887	191,294
37	13	77,581	217,429	37	13	77,581	217,429
38	14	81460	247,136	38	14	81,460	247,136
39	15	85,533	280,900	39	15	85,533	280,900
40	16	89,810	319,279	40	16	89,810	319,279
41	17	94,300	362,900	41	17	94,300	362,900
42	18	99,015	412,481	42	18	99,015	412,481
43	19	1,03,966	468,836	43	19	103,966	468,836
44	20	1,09,164	532,891	44	20	109,164	532,891
45	21	1,14,622	605,697	45	21	114,622	605,697
46	22	1,20,354	688,451	46	22	120,354	688,451
47	23	1,26,371	782,510	47	23	126,371	782,510
48	24	1,32,690	889,421	48	24	132,690	889,421
49	25	1,39,324	1,010,938	49	25	139,324	1,010,938
50	26	1,46,291	1,149,057	50	26	146,291	1,149,057
51	27	1,53,605	1,306,047	51	27	153,605	1,306,047
52	28	1,61,285	1,484,486	52	28	161,285	1,484,486
53	29	1,69,350	1,687,304	53	29	169,350	1,687,304
54	30	1,77,817	1,917,832	54	30	177,817	1,917,832
55	31	1,86,708	2,179,856	55	31	186,708	2,179,856
56	32	1,96,043	2,477,679	56	32	196,043	2,477,679
57	33	2,05,845	2,816,191	57	33	205,845	2,816,191
58	34	2,16,138	3,200,954	58	34	216,138	3,200,954
59	35	2,26,945	3,638,284	59	35	226,945	3,638,284
60	36	2,38,292	4,135,364	60	36	238,292	4,135,364
Total	4140129	34061077	Total	4140129	34061077

Basic salary: 3,60,000 a year. 

Initial investment: Rs 30,000 per year (12% of the basic salary)

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Annual Contribution Increase: 5%

Key takeaways

Based on the table and assuming an 8.25% interest rate, A can accumulate a significant sum of Rs 3,40,61,077 in their EPF by retirement at the age of 60. 

Breakdown of key takeaways

Total contribution: A would contribute a total of Rs 41,40,129 throughout their service years.

Employer contribution: It’s important to note that your employer would also contribute an equal amount, significantly boosting the final corpus. 

So, your final EPF contribution will be–  Rs 3,40,61,077 (employee’s)+Rs 3,40,61,077 (employer’s contribution) = Rs 6,81,22,154 

Calculation for B’s Retirement Corpus 

Scenario 2	Employee’s Contribution	Scenario 2	Employer’s Contribution
Age	Year	EPF	MF	Age	Year	EPF
Invested Value	FV	Invested Value	FV	Invested Value	FV
25	1	21600	23,360	21,600	24,192	25	1	21600	23,360
26	2	21600	25,264	22,680	28,450	26	2	21600	25,264
27	3	21600	27,323	23,814	33,457	27	3	21600	27,323
28	4	21600	29,550	25,005	39,345	28	4	21600	29,550
29	5	21600	31,958	26,255	46,270	29	5	21600	31,958
30	6	21600	34,563	27,568	54,414	30	6	21600	34,563
31	7	21600	37,380	28,946	63,991	31	7	21600	37,380
32	8	21600	40,426	30,393	75,253	32	8	21600	40,426
33	9	21600	43,721	31,913	88,497	33	9	21600	43,721
34	10	21600	47,285	33,509	104,073	34	10	21600	47,285
35	11	21600	51,138	35,184	122,390	35	11	21600	51,138
36	12	21600	55,306	36,943	143,930	36	12	21600	55,306
37	13	21600	59,813	38,790	169,262	37	13	21600	59,813
38	14	21600	64,688	40,730	199,052	38	14	21600	64,688
39	15	21600	69,960	42,767	234,085	39	15	21600	69,960
40	16	21600	75,662	44,905	275,284	40	16	21600	75,662
41	17	21600	81,829	47,150	323,734	41	17	21600	81,829
42	18	21600	88,498	49,508	380,712	42	18	21600	88,498
43	19	21600	95,710	51,983	447,717	43	19	21600	95,710
44	20	21600	103,510	54,582	526,515	44	20	21600	103,510
45	21	21600	111,947	57,311	619,182	45	21	21600	111,947
46	22	21600	121,070	60,177	728,158	46	22	21600	121,070
47	23	21600	130,937	63,186	856,314	47	23	21600	130,937
48	24	21600	141,609	66,345	1,007,025	48	24	21600	141,609
49	25	21600	153,150	69,662	1,184,261	49	25	21600	153,150
50	26	21600	165,632	73,145	1,392,691	50	26	21600	165,632
51	27	21600	179,131	76,803	1,637,805	51	27	21600	179,131
52	28	21600	193,730	80,643	1,926,058	52	28	21600	193,730
53	29	21600	209,519	84,675	2,265,045	53	29	21600	209,519
54	30	21600	226,595	88,909	2,663,693	54	30	21600	226,595
55	31	21600	245,062	93,354	3,132,502	55	31	21600	245,062
56	32	21600	265,035	98,022	3,683,823	56	32	21600	265,035
57	33	21600	286,635	102,923	4,332,176	57	33	21600	286,635
58	34	21600	309,996	108,069	5,094,639	58	34	21600	309,996
59	35	21600	335,260	113,472	5,991,295	59	35	21600	335,260
60	36	21600	362,584	119,146	7,045,763	60	36	21600	362,584
Total	777600	4,524,836	2,070,065	46,941,053	Total	777600	4,524,836

Invested	Rs 20,70,065
FV	Rs 4,69,41,053
Gains	Rs 4,48,70,989
TAX	Rs 44,77,099
Corpus	Rs 4,24,63,954

By contributing towards their retirement corpus through SIP and EPF, B can accumulate a sizable amount of Rs. 5,16,23,868 by the time of retirement at 60.

This calculation excludes Long Term Capital Gains (LTCG) tax on SIP investments.

The amount, however, includes the employer’s contribution.

Breakdown of contributions

EPF: Rs. 7,77,600 (assuming a constant contribution of Rs 1,800 per month till retirement from the employee and the employer each)

SIP: Rs. 20,70,065 (assuming a 12 per cent annual return and a 5 per cent annual increment in SIP amount)

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Thus, we see that, given two situations, a full 12 percent contribution to the EPF helped A a higher retirement corpus than B, who opted for the minimum EPF contribution and SIP. 

Here, one factor that you need to keep in mind is that SIP returns can be less or more than 12 per cent annually and calculations will change based on that.

We have calculated on the basis of a 12 per cent return.