Dear Friend,

Thank you for visiting my Blog. Not all of us were born in a rich family and we always think about retiring as a CROREPATI. Thinking is one thing, have you done anything to achieve that dream?

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Best Wishes!!

Anand

Friday, September 17, 2010

Good News for Salaried Employees




It always feels good to write something that is good news for my fellow citizens who toil hard everyday in their offices. This indeed is good news for all of us who get our monthly paychecks from our employers.

It has been announced by the EPF (Employee Provident Fund) Office in India that the rate of interest given on employee PF contributions has been increased from 8.5% to 9.5% for this year. This means that our PF contributions will be earning an increased rate of interest from now on. This 1% may look small now but in the long run, it is going to be very fruitful towards our aim of a bigger retirement corpus.

Let us try to figure out why…

Is this increase by 1% good?

Definitely YES. Without any doubts/questions. Provident Fund or PF is in many cases the only saving for the salaried middle class man who works hard, day and night for his monthly salary trying to manage his family with whatever meager income he makes. This increase of 1% is not only for fresh contributions to the PF corpus but also to the existing corpus that has been accumulated by the person. So, for people who are nearing their retirement, this is a bonanza.

Let us do some simple mathematics. Let us consider 2 people Mr. A & his boss Mr. B.

Mr. A has been employed for 5 years and has an existing PF corpus of Rs. 3 lacs and makes a monthly contribution of Rs. 2500/-

Mr. B has been employed for 25 years and has an existing PF corpus of Rs. 20 lacs and makes a monthly contribution of Rs. 7500/- every month.

Existing 8.5% Rate of Interest:

For Mr. A:

Initial Corpus: 3 lacs
Fresh Contribution this year: Rs. 27,500/- (@2500 every month)
Corpus Value at the end of the year: Rs. 3,55,214/-

Interest earned this year: Rs. 27,714/-

For Mr. B:

Initial Corpus: 20 lacs
Fresh Contribution this year: Rs. 82,500/- (@7500 every month)
Corpus Value at the end of the year: Rs. 22,62,872/-

Interest earned this year: Rs. 1,80,372/-


New 9.5% Rate of Interest:

For Mr. A:
Initial Corpus: 3 lacs
Fresh Contribution this year: Rs. 27,500/- (@2500 every month)
Corpus Value at the end of the year: Rs. 3,58,615/-

Interest earned this year: Rs. 31,115/-


For Mr. B:

Initial Corpus: 20 lacs
Fresh Contribution this year: Rs. 82,500/- (@7500 every month)
Corpus Value at the end of the year: Rs. 22,85,019/-

Interest earned this year: Rs. 2,02,519/-

Extra Interest Earned by Mr. A = Rs.3,401/-
Extra Interest Earned by Mr. B = Rs.22,147/-


What Should we do now?

This is a very interesting scenario. With the PF office giving us an extra 1% rate of interest, our tax saving options have just gotten better. I am sure many of us know what VPF is. VPF stands for Voluntary Provident Fund. This is an option that we have wherein we can make planned monthly contributions to our PF corpus that would earn the same interest as our PF and on top of that we will get tax benefits too.

So I would suggest that people who can spare some surplus every month, say Rs. 2000 or Rs. 3000 in a month, divert it to your VPF. This would earn you a handsome interest plus give you tax benefits. Two mangoes in one stone.

Happy Investing!!!

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