You must hate it when you look at your salary slip at the beginning of the month and find that all the various deductions have reduced your monthly income. But, One of These Deductions Could Make You a Millionaire When You Retire — Your Contribution Employees Provident Fund (EPF).
Incredible, isn’t it? Especially when the monthly investment is very small and the interest rate offered on it is not that high. You should note that your employer also matches the same amount of your contribution. EPF fund every month. If you consider the compounding rule, your provident fund can save you a lump sum amount if you hang your boot.
Your EPF fund fetches an interest rate of 8.5 per cent for the financial year 2020-21. Fixed deposits (FDs) and many government schemes available in the market have higher interest rates than what the bank offers. With this interest rate, a person with a basic salary income of Rs 25,000 per month can accumulate a whopping amount of Rs 1.65 crore in 35 years. The interest earned on EPF deposits is completely tax free.
Then, what do you need to do to accumulate more than crores from your EPF investment?
You must ensure that you never withdraw from your EPF account till you retire. Withdrawal from EPF is taxable within five years of joining. When you change your job, you should transfer the balance to the new account with the new employer instead of withdrawing it.
“In India, the average inflation in the long run is assumed to be around 6 per cent, while the return given by EPF is around 8.5 per cent. EPF is one of the limited investment avenues for salaried individuals that can help them beat the peculiarities of inflation and build an adequate retirement corpus. Wealth builds over a long period, so to build a corpus one should avoid withdrawing from the corpus in its initial years,” said Pranjal Kamra, CEO, Finology.
Benefits of Employees’ Provident Fund (EPF)
“One of the most important benefits of these investments is that they act like a micro cut at source, something that will not create a huge dent in household income, and at the same time the returns not only provide inflation protection but Also provides emergency assistance,” said Jai Jhaveri, Partner, Bhuta Shah & Co. LLP.
“If understood properly, they can provide real help to an individual, for retirement. Also, real emergency benefits like cheap loans against PF balance, use for purchase of house etc. are not provided by any insurance policy. The benefits are far outweighed and are overlooked.”
Experts agree that EPF is one of the most beneficial savings along with the benefits of an insurance policy. Bhuta said that when viewed from this perspective, no device with the same stability and security can beat them as one of the top choices to park funds.
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