Employee Provident Fund or EPF is a boon for the salaried class – especially for those earning less than Rs 15,000. The Government of India has mandated it as a long term superannuation investment tool.
It is administered by the Employee Provident Fund Organisation (EPFO) and The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. An employee is automatically registered for PF when he joins his first job.
After 2016, an existing account is assigned a PF Number or Universal Account Number (UAN), which remains the same throughout his working life and is used to identify his account.
How does it work?
The employee and employer both make an equal contribution to the fund. 12% of the employee’s basic pay + dearness allowance is earmarked for PF. Along with it, the employer also contributes 12% of the basic + DA of the employee. However, the employer’s contribution is split into two components – EPF and EPS – the two retirement schemes under the EPF.
- EPS (Employee Pension Scheme) is a part of the total pension contribution to EPF which is governed by Employees’ Pension Scheme 1995.
- The employer’s EPF contribution is 3.67% of this 12% goes to EPF, and 8.33% goes towards EPS.
Things to Know under PF
Employees earning less than Rs. 15,000 as basic are mandated to earn maximum advantage under EPS. In a salary of Rs 15,000, you can earn a maximum contribution of Rs. 1,250 (8.33% of Rs 15,000) with the excess going to EPF.
- Returns
The government pays 8.75% interest on the EPF portion of the employer. However, there is no interest earned on EPS and is essentially a pension scheme. An example is shown below will show how to calculate PF balance. As an employee, you join with a salary of Rs. 50,000 from the month of June.
| Month | Employer Contribution (3.67%) | Employee Contribution (12%) | Monthly Balance at month-end | Interest applicable |
| June | Rs 1,835 | Rs 6,000 | Rs 7,835 | Nil (Just joined company) |
| July | Rs 1,835 | Rs 6,000 | Rs 15,670 | Rs 7,835 X 8.65/12=Rs.56 |
| August | Rs 1,835 | Rs 6,000 | Rs 23,505 | Rs 113 |
| September | Rs 1,835 | Rs 6,000 | Rs 31,340 | Rs 169 |
| October | Rs 1,835 | Rs 6,000 | Rs 39,175 | Rs 226 |
| November | Rs 1,835 | Rs 6,000 | Rs 47,010 | Rs 282 |
| December | Rs 1,835 | Rs 6,000 | Rs 54,845 | Rs 339 |
| January | Rs 1,835 | Rs 6,000 | Rs 62,680 | Rs 395 |
| February | Rs 1,835 | Rs 6,000 | Rs 70,515 | Rs 452 |
| TOTAL EPF Balance at year-end | Rs 16,515 | Rs 54,000 | Rs 3,52,575 | Rs 2,033 |
Note: 1. Monthly balance=Employee contribution & employer contribution 2. Interest amount= [Monthly balance X interest rate]/12s
Investing Wisely Post PF Maturity
While EPF does have its benefits, especially for retirement planning, multiplying your PF corpus is advisable. It is important to find an equal or higher-paying investment option like Bajaj Finance Fixed Deposit, which offers 8.7% interest rate as compared to 8.65% offered by PF.
Here your principal is assured highest safety with ICRA’s MAAA (stable) rating and CRISIL’s FAAA/Stable ratings. You can invest in a monthly payout option (Cumulative FD) or lumpsum paying option (Non-Cumulative FD) for earning interest. Use the online fixed deposit calculator to understand the returns of various tenors and principal.
Bajaj Finance has been building trust for its services with a total deposit book of 16000+ crores, and about 2,50,000 customers.
