Kolkata: Employee’s Provident Fund, or EPF, was legislated in 1952 and has the distinction of perhaps being the first social safety net for employees of the formal sector in India. It has not only survived the paradigm shift of the economy from a controlled to a market-oriented one but also steadily increased in popularity. It takes 12% contribution from the Basic + DA from the salary of an employee and 3.67% from the employer and build a kitty for the post-retirement life of an employee.
Stated mildly, EPF is a silent worker. It keeps building a neat corpus for you with regular contributions from your salary. Moreover, it earns you a high rate of interest — for example, 8.25% for FY24 — coupled with the maximum degree of safety of capital possible. Therefore, it is a steady multiplier of funds, and powered by the very long-term compounding, more than 30 years in many circumstances, it generates a very significant sum. But can it generate a kitty of more than Rs 1 crore, especially with a low basic salary of Rs 10,000. Let’s find out.
How to get 1 crore in EPF?
Let’s begin with a youth who starts working and earning at 22. Let’s also assume that he/she will work till the age of 58. Let his/her initial basic salary be Rs 10,000, which is low by most yardsticks in the formal sector. The other assumptions needed for the calculation of EPF are as follows: rate of interest 8.25% during the entire term. The rate of increment of salary that this person manages to get is 7%. With these assumptions, the EPF calculator will tell you that the kitty will have Rs 1,13,64,003, or well over Rs 1 crore, at the age of 58.
If you think a 7% increment is a bit on the higher side, let’s try the calculation with 6.5%. All other assumptions remain unchanged in this scenario. In this case, the amount in the EPF corpus will be Rs 1,03,55,584 — still over Rs 1 core.
EPF corpus with increment at 6%
Let’s check a third scenario and with a 6% salary increment. It has to be kept in mind that since the rate of retail inflation has been around this level in this century, this is a rate of increment that you have to be paid if your real salary needs to be protected by your employer. If a 6% salary increment is assumed, the amount will stand at Rs 94,45,090, or Rs 94.45 lakh, at the age of 58.
Being a crorepati is still a dream of many middle-class people. Investment strategists regularly advise common investors on how to invest in the long-term to easily amass more than a crore. However, you should know that your good old EPF (Employee’s Provident Fund) is also capable of building Rs 1 crore kitty for you. For details, read on. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
