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How to decode your provident fund statement
Deepti Bhaskaran
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April 28, 2008

Towards the start of a financial year, your employer hands you a piece of paper, which you tuck away as soon as you get it. That document is from the Employees' Provident Fund Organisation, one of the most important vehicles for your retirement investments.

Later in life, when you are not up to doing much, leave alone holding a job, the importance of the EPF statement will become clear, for, it is your only record of the contributions you made.

Your EPF investment works like this: every month your employer deducts 12 per cent of your salary (basic plus dearness allowance and retaining allowance, if any),  pitches in with an equal amount and invests it in EPFO on your behalf.

Your employer's contribution, however, is in two parts - 8.33 per cent goes into the Employees' Pension Scheme, which offers you pension for life starting at the age of 58 years. The remaining 3.67 per cent goes towards your PF. Currently, this kitty earns 8.5 per cent yearly, and is tax-free. Even your contributions qualify for a deduction under Section 80C.

For instance, for a 25-year-old, earning a basic salary of Rs 6,000, which increases at 15 per cent every year, an EPF contribution for 30 years earning 8.5 per cent per annum would aggregate to Rs 1.02 crore (Rs 10.2 million).

Since this is a voluntary contribution for those with a basic salary over Rs 6,500, the company may contribute only till the maximum basic requirement of Rs 6,500, which is Rs 780. Most, however, contribute 12 per cent of the entire basic.

How to read the statement?

The EPF statement tells you how much you accumulated and other vital details.

Account number. It's alphanumeric. The first two letters indicate the state from which money is contributed. The next five digits are the employer's code, followed by the employee's code. Knowing this number is crucial to ensure unfettered accumulation in the account despite any change in jobs.

Opening balance. This is the amount that you carry forward from previous financial years. This is divided into two heads - employee's contribution (the  amount contributed by you and the interest), and employer's contribution (the amount contributed by the employer and the interest).

Interest. The interest on the entire corpus accumulated so far.

Contributions. The payments made by you and your employer during the financial year.

Refund of withdrawals. The amount you repaid if you have taken advances.

Withdrawals. Any partial withdrawals or advances that you may have taken.

Closing balance. Sum of contributions made by the employer and the employee for the previous and the current year.

Non-contributory period. The period in which contributions were not made.

Even as you plan your future through equities or other vehicles, don't ignore the EPF slip. After all, it's a hassle-free accumulation way to a happy retirement.

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