The EPFO at present is offering an interest rate of 8.25% on PF deposits. Let’s explore how much one needs to invest per month to make a retirement corpus of Rs 1 crore faster under the EPF scheme, assuming that the interest rate remains at the same level.
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Provident Fund: With Rs 25,000 monthly salary, how long will it take to reach Rs 1 crore retirement corpus under EPF?
The employees’ provident fund (EPF) is a retirement benefit scheme run by the Employees’ Provident Fund Organisation (EPFO). Under the EPFO scheme, both the employer and the employee contribute a certain amount every month till the employee is working in that particular company. The employee gets tax benefits on his EPF contribution and also receive higher interest rate than other saving schemes.
At present, the EPFO is providing an interest rate of 8.25% to employees on their provident fund deposits. In this article we will explore how much one needs to invest per month to make a retirement corpus of Rs 1 crore faster under the EPF scheme, assuming that the interest rate remains at the same level.
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As per EPFO rules, employees can contribute 12% of their basic salary and dearness allowance towards the employees’ provident fund (EPF). To match the employees’ share, employers also contribute 12%, with 8.33% going to the Employee’s Pension Fund (EPS) and 3.67% going to the EPF. Additionally, employees have been given this option of Voluntary Provident Fund (VPF) contribution, wherein they can ask their employer to deduct beyond their 12% of EPF share. The maximum VPF contribution can be up to 100% of basic salary and dearness allowance with the same rate of interest as on original contribution.
Remember, if your voluntary and original EPF contributions exceed Rs 2.5 lakh in a financial year, you will have to pay tax on the interest earned on the excess amount. In such a case an additional EPF account is opened to receive interest earned on the excess contribution.
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How long it takes to make Rs 1 crore retirement corpus under EPF with Rs 25000 salary
Let’s assume an individual, age 25, is earning a salary of Rs 25,000 a month, with basic pay at Rs 15,000. From an illustration, We will see how long it takes this person to reach Rs 1 crore corpus through EPF investment. Here we assume that the EPF contribution will go up by 10% every year, on account of salary increases.
Basic Salary – Rs 15,000
Total EPF Contribution (12% of basic salary + 3.67% of basic) = Rs 1750+550 = Rs 2300 per month
(The employee’s 12% and the employer’s 3.67% contributions go towards EPFO)
With Rs 2300 per month and 10% increase in contribution every year, it will take 30 years to cross a corpus of Rs 1 crore under EPF. At the age of 55 years, the individual can withdraw Rs 1.07 crore, which means 30 years of investment in EPF will take this individual who starts with a meagre salary of Rs 25,000 to his financial goal of Rs 1 crore EPF corpus.
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