You must hate it when you look at your salary slip at the starting of the month and find that all the various deductions have reduced your monthly in-hand income. But, one of these deductions can make you a crorepati when you retire — your contribution to Employees’ Provident Fund (EPF).
Unbelievable, right? Especially when the monthly investment is too small and interest rate offered on it are not that great. You must note that your employer also match the same amount of contribution to your EPF fund every month. If you consider the compounding rule, your Provident Fund can save you a lumpsum amount when you hang up your boots.
Your EPF fund fetch an interest rate of 8.5 per cent for the financial year 2020-21. The interest rate is higher than what bank offers on fixed deposits (FDs) and many government schemes available in the market. With this interest rate, a person with a basic salary income of Rs 25,000 a month can accumulate a massive amount of Rs 1.65 crore in 35 years. The interest earned on EPF deposit is completely tax-free.
Then, what do you need to do to accumulate more than crore from your EPF investment?
You must ensure that you never withdraw from your EPF account till you retire. The withdrawals from the EPF within five years of joining are taxable. When you change your job, you should transfer the balance to the new account with the new employer instead of withdrawing it.
“In India, average inflation in the long run is considered to be around 6 per cent while the returns delivered by EPF is around 8.5 per cent. EPF is one of the limited investment avenues for salaried individuals that can help them beat the peculiarity of inflation and build a sufficient retirement corpus. Wealth is built in long term, so in order to build corpus one must avoid withdrawing from the corpus in its early years,” said Pranjal Kamra, chief executiver officer of Finology.
Advantages of Employees’ Provident Fund (EPF)
“One of the most important advantages of these investments is that they act like a micro deduction at source, something that will not create a big dent in a household income, and at the same time the returns not only provide inflation protection but also emergency assistance,” said Jay Jhaveri, partner at Bhuta Shah & Co LLP.
“If understood properly they can towards retirement, provide real support to an individual. Moreover, the real emergency benefits like cheap loans, utilization towards house purchase, etc against the PF balances are far greater than the benefits any insurance policy can provide and these tend to be overlooked,” he added.
EPF is one of the most beneficial savings with benefits of insurance policy, experts believe. When looked at with this perspective no instrument with similar stability and safety can beat them as one of the top most choices to park fund, Bhuta added.