Saturday, April 30, 2011

Employee Provident Fund (EPF) : Retire as a Crorepati

                                  Get your clock at

        We normally hate any kind of deductions in our monthly salary slips – either its income tax deduction , professional tax deduction or even an EPF deduction.Very few of us really know that this small EPF deduction each year can in reality make you a crorepati by the time you retire. Encouraging fact is that this statement is applicable to even with those having modest salaries. There’s many if’s and but’s to achieve that , most notably being resisting the temptation to withdraw money till retirement.

        12% of your basic salary that gets deducted as part of EPF account every month has a potential to make you a crorepati by the time you retire. Most of us are of view that investment is so small and interest rate offered is nothing special. Power of compounding clubbed with a matching contribution from your employer every month can do wonders for you.

         Encouraging stats : 8.5% interest earned on the EPF can help a person with a basic salary of 25,000 a month accumulate a mammoth 2.4 crore in 35 years. Sounds unbelievable.
Hard fact : A very few people are able to reach even 1 crore milestone in their careers.

          Good news is that the initial draft of Direct Tax Code has proposed that new contribution to EPF be taxed on withdrawal. However , the revised draft has made EPF fully tax exempt making it once again one of the best debt option available in the market.

       Try not to touch your EPF account till you hang your boots. You may have to use it during acute emergencies but other than that avoid poking into this account while you are working. Its not uncommon of people to withdraw their PF at the stage. Government discourages you to withdraw money as withdrawals from EPF within five years of joining are taxable. Early withdrawal don’t allow power of compounding to come to play.

      Lesson for everyone – Do not withdraw money from EPF while switching jobs , one should transfer the balance to the new account with the new employer. Remember , this do not happen automatically. You need to fill a ‘Form 13′ and deposit it with the EPFO. Make this one of your first TODO’s things at new workplace as with course of time you will loose track of it and also get pre-occupied at new job.

EPFO in addition is coming up with a software enabling online transfer of money from old account to new account. This will reduce both the paperwork and time taken for transaction.


           Employee Provident Fund (EPF) : Retire as a Crorepati

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