Employees’ Provident Fund (EPF) is one of the most beneficial savings options. Every year the government fixes interest on the amount deposited in this PF account.
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A key question that most subscribers face here is how much they would earn from EPF on retirement.
While many assumptions are at play in this calculation, it’s imperative to understand that subscribers can earn a decent amount if they avoid withdrawing from their EPS corpus. The power of compounding further adds to the retirement savings over the long term.
In EPF, employees contribute 12 percent of their salaries, and employers contribute an equal amount, which doubles the monthly savings. The interest earned on the deposit is tax-free.
For the current quarter, EPF fetches 8.1 percent.
"Going by the rule, the interest here is calculated by adding the monthly running balance and multiplying it with the interest rate and dividing it by 1,200," Abhinav Angirish, Founder, Investonline, told CNBC-TV18.com.
The EPFO calculates the month-wise closing balance and then the interest for the whole year.
Now, if an employee withdraws a certain sum from the account, then interest from the beginning of the year till the last date of the month preceding the month in which the withdrawal took place is considered.
So, the closing balance for the year will be: Opening balance + contributions -withdrawal (if any) + interest.
Let’s assume that the interest rate is 8.1 percent and the opening balance is Rs 1,00,000. The monthly contribution is Rs 1,000. The employee withdraws Rs 30,000 in the third month.
The interest calculated will be: the sum of the balance = Rs 8,87,000 (one can reach this after doing proper calculation) and interest will be 8,87,000 x (8.1/1,200) = Rs 5,987.
Thus, the closing balance for the year will be: Opening balance + contributions - withdrawal + interest = Rs 1,00,000 + Rs 12,000 - Rs 30,000 + Rs 5,987 = Rs 76,013.
ALSO READ | How to read your EPFO account balance statement
Now, the question is if anyone can accumulate more than a crore through EPF investment.
According to experts, if one does a quick back-of-envelope calculation, an individual aged 21 years, say who starts his/her career with a package of Rs 2,10,000 and gets an annual increment of 8 percent each year would easily get over Rs 1 crore on retirement.
Meanwhile, any employee who wants to check their Provident Fund balance online can log in to the official website, send a text message ‘EPFOHO UAN ENG’ to 7738299899, give a missed call at 9966044425, or download and use the UMANG App.
Before checking the balance, one needs to keep the Universal Account Number (UAN) ready. The UAN links and helps a member or subscriber to view details of all Member IDs they have.
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