The Employees’ Provident Fund (EPF) is a simple and effective way to secure a financially comfortable retirement. Managed by the Employees’ Provident Fund Organization (EPFO), this scheme helps you save steadily over your working years. With contributions from both the employee and employer, plus compounding interest, your EPF account can build a sizeable fund for retirement. Here’s how:
Why EPF is the Best Retirement Plan
For a stress-free retirement, having at least Rs.2 crore saved is crucial. EPF helps you achieve this goal by consistently saving a portion of your salary and earning interest on the accumulated amount. If you start early, say at age 25, and keep investing until retirement at age 58, you can create a fund of over Rs.2 crore, even with a basic salary of Rs.30,000.
Understanding EPF Contributions and Interest
- Employee Contribution:
- You contribute 12% of your basic salary and dearness allowance (DA).
- For a basic salary of Rs.30,000, your contribution is Rs.3,600 monthly.
- Employer Contribution:
- Your employer contributes 3.67% of your basic salary (Rs.1,101 monthly).
- Additionally, 8.33% (Rs.2,499) goes into the Employee Pension Scheme (EPS).
- Interest Rate:
- EPF currently offers an interest rate of 8.25% per annum.
- This is compounded annually and significantly boosts your savings.
Illustration: Savings with Rs.30,000 Basic Salary
- Starting Age: 25 years
- Retirement Age: 58 years
- Annual Salary Increment: 8%
- Total Employee Contribution: Rs.55,99,680
- Total Interest Earned: Rs.1,52,23,250
- Total Fund on Retirement: Rs.2,25,88,720 (Approx. Rs.2.25 crore)
How Interest is Calculated
Each month, your contribution and the employer’s contribution are added to your EPF account. The interest, calculated at 8.25% per annum, is applied monthly (0.6875% per month) but credited at the end of the financial year.
Steps to Check EPF Account Balance
Option 1: Online Portal
- Visit the EPFO Member Passbook portal.
- Log in using your UAN (Universal Account Number) and password.
- If logging in for the first time, activate your UAN by verifying your Aadhaar-linked mobile number with an OTP.
- After logging in, select your EPF account if you have multiple accounts.
- Click on “View PF Passbook” to check your balance and transaction details.
Option 2: UMANG App
- Download the UMANG App from the Google Play Store.
- Go to the EPFO section and log in with your UAN and password.
- View your EPF balance and transaction history instantly.
Key Benefits of EPF Savings
- Safe and Secure: EPF is backed by the Government of India, making it a reliable savings option.
- Tax Benefits: Contributions are eligible for tax deductions under Section 80C of the Income Tax Act.
- Employer Match: The employer’s contribution boosts your savings significantly.
- Compounding Interest: Over the years, compounding can multiply your savings exponentially.
Why Start Early?
The earlier you start contributing to EPF, the more time your savings have to grow. Even a few years’ delay can reduce the final fund significantly due to the effect of compounding.
For example, starting at 25 versus 30 can make a difference of lakhs in your retirement corpus.
Make Your EPF Work Harder
- Ensure your basic salary and DA are calculated correctly to maximize contributions.
- Avoid withdrawing from your EPF account prematurely to let your savings grow uninterrupted.
- Check your account balance regularly to track contributions and interest earnings.
EPF is more than just a monthly deduction from your salary—it’s a powerful tool to secure a stress-free retirement. Take full advantage of it by starting early and contributing consistently!
