The Employees’ Provident Fund (EPF) is the earliest and most effective social security scheme for employees in India, having been launched in 1952. The fund is managed by EPFO (Employees’ Provident Fund Organisation).
EPF calculator: How to build Rs 2 crore corpus
The source of the funds that accumulates in an EPF account is the employee’s own contributions and a matching amount from the employer. An amount of 12% of the Basic + DA (dearness allowance) from each employee’s salary is deducted and put into their respective accounts.
The 12% that comes from the employer is divided into two parts – 3.67% goes into the same EPF account while the rest 8.33% goes into a pension account. An employee gets monthly pension from teh age of 58.
Let’s see what salary of an employee can result in a corpus of Rs 2 crore accumulate in his/her EPF account. The rate of interest applicable to the accumulated funds in EPF account was 8.25% in FY24.
Let us assume for the sake of calculation that this rate of interest holds true for the entire tenure. Let’s also assume that the 12% contribution from the employee and 3.67% from the employer also remains unchanged for the next few decades.
Scenario 1: the calculation
We are assuming a nominal 1% annual raise in salary every year. Under this exceptionally modest assumption, an employee can easily exceed a retirement corpus of Rs 2 crore if his/her basic salary + DA stands at Rs 45,000 in the first year. The EPF calculator shows the amount to be Rs 2,04,11,702 or Rs 2.04 crore.
Let’s take another scenario where the rate of annual increments is raised to 5%. With such an increment, an employee with a starting basic salary + DA of just Rs 28,000 will be able to put together a corpus of nearly Rs 2 crore – 19953276 or Rs 1.99 crore.
Scenario 2: the calculation
If one has to reach Rs 2.5 crore corpus an initial salary + DA of Rs 35,000 will suffice if the annual increment reaches an average of 5%. However, if the average annual increment rate is 1%, the initial salary + DA has to be Rs 55,000. Needless to say, if the rate of increment goes up, a far bigger corpus will be created.
The Employees’ Provident Fund is a powerful retirement fund creator that offers guaranteed returns and tax-free corpus. If you don’t withdraw money from it before retirement, the pool can be really big. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
