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For the working class, the PF account of the Employees’ Provident Fund Organization (EPFO) is not just an essential savings instrument, but it also creates a strong financial security blanket upon retirement. Compared to the returns received in the stock market or mutual funds, there is absolutely zero market risk in EPF and the interest rate declared by the Government of India is completely guaranteed.
At present interest on EPF is available at the rate of 8.25% per annum. The biggest strength of EPF is its compounding effect (compound interest) and EEE (Exempt-Exempt-Exempt) tax status. This means that the amount invested, the interest received on it and the entire fund received at the time of maturity is completely exempt from income tax. If you plan at the right age and deposit a fixed amount every month, you can easily create a corpus of ₹ 1,00,00,000 (Rs 1 crore) or more at retirement.
To create a corpus of Rs 1 crore in EPF, it is important to first understand how this fund is created from your salary:
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Employee Contribution: 12% of your basic pay and dearness allowance (Basic Pay + DA) is deposited directly into your EPF account.
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Company/Employer Contribution: The total 12% employer contribution is divided into two parts—3.67% share in EPF account goes while 8.33% share Employees Pension Scheme (EPS) Deposit is made in Rs. (maximum up to ₹1,250 on basic limit of ₹15,000).
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Total PF Accumulation: 12% of the employee’s and 3.67% of the company’s total basic salary in your EPF account. 15.67% share Deposits are kept to earn interest.
EPFO calculates the interest on monthly basis and adds it to the account at the end of the financial year. If we consider the current 8.25% annual interest rate of EPF as the base, the monthly contribution required to build a corpus of Rs 1 crore over different timelines is as follows:
| time frame (duration) | Required monthly PF contribution (employee + employer) | total principal amount | total interest income | total maturity fund |
| 15 years | Approximately ₹28,350 per month | ₹51.03 lakh | ₹49.00 lakh | ₹1.00 crore |
| 20 years | Approximately ₹16,600 per month | ₹39.84 lakh | ₹60.20 lakh | ₹1.00 crore |
| 25 years | Approximately ₹10,250 per month | ₹30.75 lakh | ₹69.30 lakh | ₹1.00 crore |
| 30 years | Approximately ₹6,500 per month | ₹23.40 lakh | ₹76.60 lakh | ₹1.00 crore |
Note: No annual increment has been added to the basic salary in the above calculation. If you have a normal salary increase of 5% to 10% every year, initially only ₹4,000 to ₹5,000 per month Even with an initial PF contribution of ₹1 crore, the target of ₹1 crore can be easily crossed in 25 to 30 years.
If your basic salary is low and the target of ₹1 crore seems far away from the mandatory 12% deduction, then you Voluntary Provident Fund i.e. VPF (Voluntary Provident Fund) Can resort to:
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Exemption of additional contribution: Under VPF, an employee can deduct more than 12% (up to 100%) of his basic salary and DA in PF.
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Same 8.25% interest rate: VPF also gets a fixed interest of 8.25%, similar to normal EPF.
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Tax Free Limit: Keep in mind that as per income tax rules, the interest received is completely tax-free if the total employee contribution including EPF and VPF in a financial year is up to ₹ 2.5 lakh.
The most important discipline to create a big fund of Rs 1 crore or more from EPF is that instead of withdrawing the PF money while changing jobs, invest it in the new institution. UAN Always get transferred.
Withdrawal of money in between breaks the compounding chain of interest. If you allow your PF fund to accumulate without touching it for 25 to 30 years, the fund you receive on the day of retirement will prove to be much larger than your expectations.