EPFO Update: Employees’ Provident Fund Organization (EPFO) Everyone dreams of living a happy and financially secure life after retirement. To make this a reality, it is important to start investing on time. With proper planning and strategy, you can create a big fund for your retirement. Employees’ Provident Fund (EPFO) One such reliable option is. It gives better returns along with safe investment, which makes your future financially secure.
What is EPFO and its importance?
EPFO, i.e. Employees’ Provident Fund Organizationis a plan for employees that provides financial security after retirement. Under the EPFO scheme, both the employee and the employer contribute a fixed amount, which translates into a larger sum with interest over time. Its biggest feature is that it is a scheme that gives safe and guaranteed returns.
Benefits of EPFO investment
- Secure and stable returns: Under EPFO, your money remains safe and you get fixed interest every year. This market is risk free.
- Saving money for long term: EPFO creates a strong fund for your retirement.
- Pension Benefits: In this, the facility of regular income in future is available under Pension Scheme (EPS).
How does EPFO scheme work?
Under the EPFO scheme, both the employee and the employer contribute every month. employee’s basic salary 12% is deposited in the EPF account every month. At the same time, the employer also contributes 12% of the employee’s salary.
Apportionment of employer’s contribution:
- 3.67% goes into EPF account.
- 8.33% is deposited in the Employees’ Pension Scheme (EPS).
Thus, the total contribution made by the employee and the employer every month helps in building a strong retirement fund.
Who can avail the benefits of EPF?
Some conditions are prescribed to avail the benefit of EPF:
- At least 20 employees: Registration with EPFO is mandatory for organizations which have 20 or more employees.
- Voluntary Registration: Organizations with less than 20 employees can also register for EPFO.
- Ability: EPF is mandatory for employees whose monthly income is less than Rs 15,000. Employees earning more than Rs 15,000 can voluntarily opt for this.
When and how can one claim EPF?
- On retirement: An employee can claim EPF at the age of 58 or 60 years.
- On leaving service: After leaving the job, the employee can withdraw his EPF fund, provided he remains unemployed for two months.
- On untimely death: In case of death of the employee, EPF is paid to his family.
How to make Rs 2 crore from a basic salary of Rs 10,000?
Now the question arises that if your basic salary is Rs 10,000, then how can you create a fund of Rs 2 crore? Let us understand this with an example:
Case Study:
- Age of employee: 23 years
- Basic Salary: Rs 10,000
- Total Salary: Rs 40,000 (initial)
- Salary increase: 10% every year
- EPF Interest Rate: 8.25%
- Retirement Age: 60 years (37 years of service)
Monthly Contribution:
- Employee Contribution: 12% of basic salary = Rs 1,200
- Employer’s Contribution: 12% of basic salary = Rs 1,200 (divided between EPF and EPS)
- Employer Contribution to EPF: 3.67% = Rs 367
- EPS (Pension Scheme): 8.33% = Rs 833
Thus, total contribution every month = 1,200 + 367 = Rs 1,567
How will the fund be calculated?
First Year Contribution:
- Total annual contribution by employee and employer = 1,567 × 12 = Rs 18,804
10% increase in salary annually:
With a 10% increase in salary every year, the monthly and annual contributions will also increase.
Total Deposit Amount after 37 Years:
- total investment: Rs 68,46,018
- Interest: Rs 1,30,08,857
- Total Retirement Fund (Maturity Amount): Rs 1,98,54,875 (~Rs 2 crore)
Why choose EPFO?
- Non-risky: Market-linked schemes can give higher returns, but they are risky. EPFO is completely safe.
- Guaranteed Returns: EPFO guarantees interest rate every year, which is better than other savings schemes.
- Pension benefits: With EPFO, you can not only build a large corpus but also avail pension benefits after retirement.
