Start with Rs 25,000 basic salary, end with Rs 1 crore corpus: How EPF compounding math can make you a crorepati at 8.25% interest in less than 30 years with 6% annual increment

Over time, the interest earned on the accumulated balance earns interest, allowing compounding to steadily increase your retirement savings.

Being a crorepati and accumulating a corpus of over Rs 1 crore is often a financial goal for money. But when you are thinking of SIPs, mutual funds, stock markets, ETFs, gold, silver, one quiet savings instrument may lead you to the coveted gold, building a crore plus corpus in less than 30 years.The Employees’ Provident Fund (EPF) serves as a long-term savings avenue, helping employees build a retirement corpus through regular contributions and the power of compounding. Contributions are made by both the employee and employer, subject to the applicable EPF rules.As an employee’s salary grows during their working life, the amount going towards EPF can also rise from the minimum monthly contribution of Rs 1,800.

EPF math: How compounding can take you past Rs 1 crore

Over time, the interest earned on the accumulated balance earns interest, allowing compounding to steadily increase your retirement savings. With regular contributions maintained over a long period, an employee can potentially build an EPF corpus of Rs 1 crore or more.Of course, the time required to accumulate a Rs 1 crore through EPF depends largely on the monthly contribution and the number of years for which the money remains invested.A longer contribution period gives compounding more time to work, meaning even smaller regular contributions can eventually grow into a substantial corpus. Similarly, higher contributions from the employee and employer can help build a sizable retirement fund over a shorter period.To see how an EPF corpus of Rs 1 crore could be accumulated, consider an employee with a basic salary of Rs 25,000 a month. For the purpose of this calculation based on SBI Securities calculator, the employee’s EPF contribution is taken as 12% of basic wages. That calculator assumes an employer contribution to EPF at 3.67% since out of the employer’s 12% contribution, 8.33% goes towards the Employee Pension Scheme Account.The calculation can then show how long it could take to reach the Rs 1 crore mark.

Under these assumptions, the employee could accumulate approximately Rs 1 crore in around 29 years. While the government reviews the EPF interest rate annually, in this calculation we are assuming that the rate remains unchanged at 8.25% throughout the period. We have also assumed an average 6% annual increase in salary, which in turn would increase your EPF contribution every year.Every contribution made to EPF continues to earn interest during the investment period. As the employee’s salary increases, the contributions made by both the employee and employer also rise.As a result, the amount added to the EPF account changes from year to year rather than remaining the same throughout the 29-year period.Under these assumptions, the employee’s total EPF contribution would amount to around Rs 34.61 lakh, while the interest accumulated over the period would be approximately Rs 66.85 lakh. Combined, the contributions and interest would result in a retirement corpus of over Rs 1 crore, according to the SBI Securities calculator.The final amount in the EPF account can, however, vary depending on factors such as the employee’s actual salary, annual salary increases, contribution levels, periods without employment, the employer’s contribution and the EPF interest rate applicable during the 29-year period.Maintaining a 6% annual increase in basic salary over several decades can make a substantial difference to the eventual corpus. If the salary rises at a higher or lower rate, the corresponding EPF contributions and the final retirement corpus would also change.Also, if you start at a basic salary of Rs 25,000 at the age of say 22, the final corpus at the time of retirement would be much higher. The 29 year period is the time it would take for your EPF corpus to cross the Rs 1 crore mark with all conditions mentioned above staying the same.Can an employer deduct its own EPF contribution from an employee’s wages? No. An employer is not permitted to recover its share of EPF contribution by deducting the amount from an employee’s wages. Such a deduction constitutes a criminal offence, according to an ET report.Can an employee contribute more than the statutory EPF rate of 12%? Yes. In addition to the mandatory contribution, an EPF member can make voluntary contributions.(Disclaimer: Times of India does not give any personal finance or stock market investment advice. Always consult an expert before taking investment decisions)