Tuesday, September 19, 2017

Don't fret over PF deduction on salary slip, it can make you a crorepati

Don't fret over PF deduction on salary slip; it can make you a crorepati

While you may frown every time you look at your salary slip carrying mandatory deduction in the name of provident fund, you may be surprised to know that this little deduction every month has potential to make you a crorepati. Literally! Employees' Provident Fund (EPF) is a retirement saving product available to all salaried employees. While 12% of basic salary is deducted every month as your EPF contribution, your employer chips in with 3.33% of your salary into it. The remaining 8.67% goes towards pension. While the interest rate offered on EPF is not too high (8.65% p.a), what works in the favour of this investment product is the annual compounding. So even if you start at a modest salary of Rs 15,000 a month, you could accumulate a whopping Rs 2 crore by the time you retire with a 10 per cent salary hike every time (see graphic). However, to help you make a crorepati, this investment needs an unwavering commitment from you. So you need to stay invested in it till you hang your boots.

What if you switch jobs?
If you really want to become crorepati with EPF, then do not withdraw from it upon switching jobs. Instead, transfer the balance to the new account with the new employer to take advantage of the interest and the compounding. It can easily be done by registering on the EPF member portal with your Unified Account Number

Save tax too
Your EPF contributions are a great tax saver too. Contributions up to Rs 1.5 lakh can be claimed as deduction per year under section 80 C. You could actually end up with more money when add up the amount of money you have saved every year through this instrument.

Build your debt portfolio with it
In an age of low-yielding fixed deposits, your EPF can single-handedly account for the tax-efficient debt portion of your financial portfolio. Moreover, you can boost the debt portion of your portfolio with voluntary increases in your contribution.

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