Withdrawing Rs 1 lakh from PF account? You are actually losing out on Rs 11 lakh; here is how

Provident Fund has always acted as an emergency backup for salaried employees. And, most of them are going through a tough phase due to the ongoing coronavirus crisis. To provide some relief, the government has relaxed the rules for provident fund withdrawal, making it easier for you to take care of immediate financial requirements. The million dollar question, however, is that should you withdraw PF money or not?

Well, a small Google search, a PF calculator and basic math would help you understand that even small withdrawals can make a massive difference - over the long term. 

For example, if you withdraw Rs 1 lakh from your provident fund account right now, you will end up losing around Rs 11 lakh in a timeline stretching to 30 years. 

How did we come to that conclusion?

For starters, we assumed a few conditions. Let’s say you are a 25-year-old working professional with a basic salary of Rs 10,000 and Rs 1 lakh saved in the PF account. Your contribution towards EPF would be 12 per cent with the employer giving the additional 3.67 per cent money.

Now, if things remain normal, your provident fund account balance would read Rs 38,14, 026 by the time you turn 55. That is your wealth would grow to Rs 38 lakh in 30 years. 

But, what if you withdraw the Rs 1 lakh balance right now to meet lockdown requirements of food, medicines or some emergency? It will reset your provident fund account to Rs 0. And, even if you continue the monthly contribution, the balance at the age of 55 will read Rs 26,09,290. Such is the power of compounding that you will end up losing Rs 11 lakh in a period of 55 years. 

Should you withdraw PF money?

At the end of the day it’s your money, invested for tough days. The calculation shows that it won’t be smart to dig into your PF account. Instead, you can use your savings or borrow from friends to meet short term goals. However, if there is no option left, there is no harm using the PF money.