EPF: Age 27 and monthly basic salary of Rs 26,000; how large retirement fund can you generate?
EPF Retirement Corpus: Employees' Provident Fund is a retirement scheme where EPF subscribers can invest monthly to create a tax-free retirement corpus. Since EPF is a fixed interest rate scheme, investors can also use it to diversify their portfolio.
EPF Calculations: Creating a retirement corpus is important for everyone since it helps us fulfil our post retirement requirements. If we have a retirement fund, we don't need to rely on others. It provides us financial freedom and a sense of pride post retirement. There are many retirement schemes where investors can get market-linked or non-market-linked returns. EPF is a retirement scheme where subscribers can get a fixed interest rate. The corpus that they create is tax-free. Know more about it and what will be the estimated EPF retirement corpus for a 27-year-old with a monthly basic salary of Rs 26,000 at a retirement age of 60?
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Who can contribute to EPF?
Any private sector employee with a monthly basic salary of at least Rs 15,000 can have an EPF account, where they can contribute monthly.
What are the minimum and maximum EPF contributions?
The minimum EPF contribution is Rs 1,800, and the maximum is 12 per cent of the basic salary and dearness allowance (DA).
How is EPF contribution done?
A fixed amount is deducted from the private sector employee's salary every month. It's not just the employee, but the employer also contributes a similar amount to the employee's corpus.
Does all employer contribution go to employee's EPF account?
Out of a maximum limit of 12 per cent, a 3.67 per cent of the amount goes to the employee's EPF account; the remaining 8.33 per cent goes to their Employees' Pension Scheme (EPS) fund. From the EPS contribution, employees get the monthly income post retirement.
What is EPF interest rate?
EPF provides an interest rate of 8.25 per cent. The labour ministry reviews it every 3 months. The finance ministry gives it its approval.
Does EPF provide tax benefits?
EPF provides tax benefits of up to Rs 1.50 lakh in a financial year on deposits under Section 80C of the Income Tax Act, 1961. The interest earned and the maturity amount are also tax free.
Maximum age up to which one can contribute to EPF?
Though the retirement age is 58 years, if the EPF subscribers want, they can contribute up to 60 years of age.
Calculation for story
We are taking the example of a 27-year-old private sector employee, whose basic salary and dearness allowance is Rs 26,000. We expect their salary to increase by 5 per cent every year. They will contribute 12 per cent of their basic salary every month.
What will be investment?
The total investment in 33 years will be Rs 45,85,703.
What will be interest?
The estimated interest amount will be Rs 1,31,96,990.
What will be retirement corpus?
The retirement corpus thus generated will be Rs 1,77,82,693.