How to increase your EPF savings?
Employee’s Provident Fund (EPF) is a savings scheme for salaried employees maintained by the Employees Provident Fund Organisation of India (EPFO). Every company having more than 20 employees has to register with the EPFO. EPF is a mandatory scheme by which you and your employer equally contribute a fraction of your salary to your EPF account every month.
The rate of contribution stands at 12% or 10% of your salary (basic salary + dearness allowance) depending on the norms laid down by the EPFO. Your employer in most cases is likely to contribute 13.61% (including ESI and EDLI) towards the EPF.
EPF offers a lucrative interest rate, which is among the highest you can get on small saving schemes (currently 8.55% p.a). It is also tax-efficient, which makes it a great scheme for retirement savings.
3 ways to increase EPF savings
Now that you know why Provident Fund is one of the best saving schemes, know how to use it to your benefit.
1. Increase your contributions:
You can increase your EPF contributions to increase savings. You can contribute to EPF up to 100% of your salary, as per convenience. However, the employer’s contribution remains unchanged. You can increase your EPF savings by voluntarily contributing to a VPF (Voluntary Provident Fund).
VPF earns the same interest rate as EPF. Speak to your HR about opening an VPF account. By contributing more than what is required (12% of your salary), you will be earning interest on an increased amount that will in turn increase your EPF savings.
2. Avoid withdrawing before maturity:
EPF matures when you turn 58 or retire, whichever is earlier. Avoid withdrawing from your EPF before 5 years of investment as such withdrawals will be taxed. You will not be taxed for withdrawals that you make after 5 years.
You may be tempted to withdraw due to many reasons such as to purchase a home, to meet your children’s wedding expenses and others. However, refrain from withdrawing from your EPF until retirement, unless it’s an emergency.
The longer you stay invested in EPF, the more you will save and earn. This is because your EPF balance remains undisturbed and will earn interest.
3. Invest the proceeds in the right avenues:
Staying invested in EPF till retirement will give you a lump sum on maturity. You can increase your EPF savings by investing such maturity proceeds in the right investment avenues. Consider investing in Fixed Deposits (FD) and Senior Citizens Savings Scheme (SCSS). When you Invest in Fixed Deposits with trusted issuers like Bajaj Finance, you can enjoy safety, stability and guaranteed interest returns which goes up to 9.10% for senior citizens on your investment. Also, you can enjoy an additional FD interest rate of 0.25% upon renewal. You can choose to invest in cumulative and non-cumulative FDs as per your financial needs. Moreover, you can make use of an FD calculator to compute in advance the exact amount you will receive upon maturity of your investment.
SCSS, on the other hand, is for senior citizens aged above 60 years. You can invest a maximum of Rs.15 lakh, alone or jointly with your spouse in SCSS. This scheme is backed by the government, and so your investments are secure. You will earn a high return of around 8.6% p.a. on your SCSS investment. You can invest in SCSS for an average of 5 years, which you can then extend for 3 more years.
In this way, you can increase your contributions towards EPF, stay invested till retirement and invest the maturity proceeds in good investment schemes to increase your EPF savings.