Anyone who has a PF account should know the power of compounding and the rules for withdrawing money
CNBCTV18 February 27, 2025 11:53 AM
EPF is one of the best options to save money for retirement. If you also have a PF account, then know the most important thing about it.
Employees Provident Fund (EPF) is a retirement savings scheme in which both employers and employees contribute equally. It is managed by the Employees Provident Fund Organization (EPFO) as per the Employees Provident Funds and Miscellaneous Provisions Act (EPF and MP Act). The purpose of this scheme is to provide financial security to the employee after retirement.
How does Provident Fund work?
Step 1: Employee and employer contribution to EPF
As per EPF rules, you have to deposit 12% of your salary in your PF account. Employers deduct this portion while paying salary. Employers also have to deposit an equal amount in the EPF balance. Of the employer's contribution, 8.33% goes to the Employees' Pension Scheme or EPS, while 3.67% goes to EPF.
Step 2: Power of compounding The total contribution made by the employee and the employer earns an annual interest of 8% to 12%. The interest rate is decided by the government. This amount keeps increasing with compound interest and each month's contribution.
Step 3: Withdrawal The PF amount can be withdrawn in two scenarios - In the first case, you can withdraw the amount on retirement at the age of 58. This can be done by visiting the EPFO portal. In the second case, you can withdraw the amount before retirement. When a person remains unemployed for more than a month, he is allowed to withdraw up to 75% of his EPF amount. If a person remains unemployed for more than 2 months, he can also withdraw the remaining 25%.
Partial withdrawal also possible As per the rules, EPF amount can also be withdrawn partially under certain conditions. These include-
- Medical Treatment: In this case, a person can withdraw 6 times his monthly basic salary or the entire amount including interest from employee's contribution (whichever is less).
- Marriage: In this case, half of the employee's contribution can be withdrawn after 7 years of service.
- Education: In this case also, half of the employee's contribution can be withdrawn after 7 years of service.
EPF is one of the best options to save money for retirement. It offers attractive interest rates and has almost no risk.
