Employees Provident Fund, i.e., EPF, is a secure retirement scheme of the Government of India, which is managed by the Employees Provident Fund Organisation (EPFO). In this, every month, a salaried employee deposits 12 percent of his basic salary. At the same time, the employer also contributes 12 percent, but 8.33 percent of it goes directly to the Employees’ Pension Scheme (EPS). The remaining 3.67 percent is added to the EPF account.
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Increase in interest rate and investment
The government pays interest every year on the amount deposited in EPF. Currently, the interest rate is 8.25 percent. The advantage of this is that your savings keep increasing continuously without any risk. Since the salary increases every year, the amount going to EPF also increases automatically.
Understand the calculation with an example
Suppose the monthly salary of an employee is Rs 64,000. Out of this, the basic salary will be around Rs 31,900. The employee’s contribution is Rs 3,828, and the employer’s contribution is Rs 1,172. In this way, a total of about Rs 5,000 is deposited in the EPF account every month.
If we assume that the salary increases by 10 percent every year and the job is done continuously from the age of 25 to 58 years, then during this period, the contribution will be for a total of 33 years. The total investment in this period will be around Rs 1.33 crore. But after adding interest and annual increase, this amount will increase to about Rs 3.5 crore.
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Additional benefits
EPF is not limited to savings only. Along with this, the employee also gets the benefit of a pension scheme (EPS) and insurance cover (EDLI scheme). For this reason, it is considered the safest and most reliable retirement option. The special thing is that the entire process related to EPF is monitored by the government and EPFO, due to which the money is completely safe.