The Employees Provident Fund is one of the earliest and most effective social security schemes in India, having been launched in 1952. It provides assured returns and a full safety cover for all employees working in any organisations that employ 20 or more persons in businesses throughout India.
12% of Basic + DA
The EPF gets legally defined equal contributions (12%) from the Basic + DA of the employee’s salary from the employee and the employer.
However, the entire amount deducted from the employee’s salary is deposited in the EPF account, while only 3.67% of the portion deducted from employer is put in the same account. The rest (12-3.67 = 8.33%) goes into a pension account that the employee would get after he/she retires from service.
Even small contributions count
It is obvious from the above that the higher one’s salary, the higher is the amount that would accumulate in the PEF account of any employee. While that is certainly true, the reverse is not true as well.
Even if the salary of an employee is low and so are the annual salary hikes, the EPF account creates a significant pool for anyone. Let’s find out.
EPF calculator: If basic salary is Rs 5000
Let’s take an example of a young person getting a Basic salary of only Rs 5,000. Let us also assume that the increment too is very low at only 5% — a rate that can barely keep pace with retail inflation.
Even in such a scenario, EPF would accumulate for our candidate nothing less than close to Rs 26.61 lakh (Rs 26,61,755) at the age of 58.
If basic salary is Rs 10000
If the employee gets a basic salary of Rs 10,000 and the increment remains the same, the amount increases significantly. The amount jumps to Rs 58.56 lakh (Rs 58,568,51).
The real power that lies behind the capital appreciation is in the power of long-term compounding.
The EPF is administered by the Employees Provident Fund Organisation (EPFO), which, in turn, is run by the Central Board of Trustees. The EPFO functions under the Union Ministry of Labour.
The pension scheme, too, is managed by the EPFO.
The EPF is a remarkable instrument that offers a guaranteed-return, tax-free neat pool of funds for retired life. Oh yes, and it is effective even for those with a small salary. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
