BackHow many years will it take to accumulate ₹1 crore by investing in PPF and EPF?
If the contribution is the same towards both, you could reach the ₹1 crore corpus faster with PPF even if EPF offers higher interest rates
PremiumEver wondered how much time it will take you to accumulate ₹1 crore by investing either in Public Provident Fund (PPF) or Employee Provident Fund (EPF).
If the contribution is the same towards both, you could reach the ₹1 crore corpus faster with PPF even if EPF offers higher interest rates.
An individual can invest up to ₹1.5 lakh in PPF each year, and it offers an interest rate of 7.1%, the lowest in over 40 years. Let's look at how many years it will take to reach a corpus of ₹1 core through PPF.
As the interest rates are not constant for both, let's look at the calculations based on the recent rates. If you invest ₹1.5 lakh this year and keep adding the same amount every year, it will take around 25 years to accumulate a corpus of ₹1 crore at an average 7.1% interest rate.
Things work a little different when it comes to EPF. In this scheme, there is no cap on investments - it's a function of salary. As your basic salary grows, so will your investments towards EPF.
According to reports, employees' EPF investment for the last financial year will fetch 8.5%. Suppose an employee has a basic monthly income of ₹50,000. The contribution towards EPF will be ₹72,000 a year by each employee and employer, which is 12% of the basic income for each.
However, while the entire ₹72,000 will go towards investment from the employee's contribution, the same is not true for the employer. Of the employer's contribution, 8.33% will go towards the Employee's Pension Scheme, and only 3.67% will go towards investment. So, the employer's contribution will be ₹22,020 a year.
If the interest rate and contribution remain the same throughout an individual's career, it will take over 28 years to build a corpus of ₹1 crore.
(Do you have personal finance queries? Send them to mintmoney@livemint.com and get them answered by industry experts)
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