The Employee Provident Fund (EPF) can help build a substantial retirement corpus. It is a long-term investment that allows money ample time to grow. Regular, long-term investment in the EPF yields excellent returns. The EPF scheme primarily covers employees in the private sector.

Investing approximately ₹10,750 per month in the EPF for about 20–25 years can create a corpus of around ₹1 crore. This calculation assumes an annual interest rate of 8.25%. If an employee also invests ₹6,000 monthly in the Voluntary Provident Fund (VPF), a corpus of approximately ₹1.58 crore could be accumulated over 24–25 years.

It is important to note that career breaks impact the EPF corpus. This is because a career break halts the monthly EPF contributions, thereby affecting the benefits of compounding over the long term.

Under EPFO ​​rules, employees contribute 12% of their basic salary to the EPF each month. The employer also contributes 12% to the employee's EPF account; of this, 8.33% goes into the Employees' Pension Scheme (EPS), and 3.67% goes into the EPF.

Mayank Parashar, an Associate at Classis Law, explained this with an example. He cited the case of an employee who works continuously for 25 years with a monthly EPF contribution of ₹10,750. With an annual interest rate of 8.25%, their EPF corpus would grow to approximately ₹1 crore over 24–25 years. This calculation assumes that there is no change in the employee's monthly contribution.

Impact of a career break

Parashar stated, "A career break will not affect the funds already accumulated in the EPF. However, the cessation of contributions during the break will impact the retirement corpus." This means that if an employee takes a three-year career break, EPF contributions will stop during that period. In the long run, this affects the benefits of compounding.

Parashar illustrated this with an example. He asked us to assume that an employee contributes for only 22 years instead of 25. He said, "In such a scenario, the EPF corpus would amount to approximately ₹76.6 lakh. This implies that the career break causes a reduction of about ₹24.9 lakh in the fund."

He noted that during a career break, not only do contributions cease, but the employee also misses out on the interest and compounding benefits that would have accrued on those contributions. This can be understood with the help of the table below.

Building a substantial corpus with VPF

If an employee has an uninterrupted career and contributes an additional ₹6,000 per month to the VPF, the total monthly EPF contribution rises to ₹16,750. Over 25 years, this results in a corpus of approximately ₹1.58 crore.

This example demonstrates that regular contributions allow the EPF to help build a significant retirement corpus. Making additional contributions via VPF can lead to an even larger fund. However, a career break reduces the size of the retirement corpus.

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