EPF vs SIP: Which will help you make more money?

Scenario 1: I am 25-year-old. My basic salary is Rs 30,000. I will exhaust the full limit of EPF (12% of basic salary). Here, I will increase my EPF contribution 5% every year. My EPF at the time of retirement at 60 years of age?


Scenario 1
Age	Year	Invested Value	Future Value
25	1	43200	46,764
26	2	45360	53,153
27	3	47628	60,415
28	4	50009	68,669
29	5	52510	78,051
30	6	55135	88,715
31	7	57892	1,00,836
32	8	60787	1,14,613
33	9	63826	1,30,271
34	10	67017	1,48,070
35	11	70368	1,68,300
36	12	73887	1,91,294
37	13	77581	2,17,429
38	14	81460	2,47,136
39	15	85533	2,80,900
40	16	89810	3,19,279
41	17	94300	3,62,900
42	18	99015	4,12,481
43	19	103966	4,68,836
44	20	109164	5,32,891
45	21	114622	6,05,697
46	22	120354	6,88,451
47	23	126371	7,82,510
48	24	132690	8,89,421
49	25	139324	10,10,938
50	26	146291	11,49,057
51	27	153605	13,06,047
52	28	161285	14,84,486
53	29	169350	16,87,304
54	30	177817	19,17,832
55	31	186708	21,79,856
56	32	196043	24,77,679
57	33	205845	28,16,191
58	34	216138	32,00,954
59	35	226945	36,38,284
60	36	238292	41,35,364
	Total	4140129	3,40,61,077

Basic Salary: 30,000

Initial Investment: Rs 30,000 per year (12% of your basic salary)

Annual Contribution Increase: 5%

Key takeaways:

You would contribute a total of Rs 41,40,129 throughout your working years till 60.

Considering an assumed interest rate of 8.25%, the future value of your EPF at retirement could be around Rs 3,40,61,077.

Scenario 2. I am 25-year-old. My basic salary is Rs 30,000. I will contribute Rs 1,800 a month to EPF and will keep it at the same level till retirement at 60. What I will do here, I will invest the rest of the amount in a SIP and expect a 12 per cent annual return from there. Here, I will also increase my SIP amount by 5% every year. What will be my retirement corpus through (PF+SIP) at 60. Please exclude long-term capital gain tax from corpus.

Scenario 2		Invested Value		Invested Value
Age	Year	EPF	fv	MF	FV
25	1	21600	23,382	21,600	24,192
26	2	21600	25,311	22,680	28,450
27	3	21600	27,399	23,814	33,457
28	4	21600	29,660	25,005	39,345
29	5	21600	32,107	26,255	46,270
30	6	21600	34,755	27,568	54,414
31	7	21600	37,623	28,946	63,991
32	8	21600	40,726	30,393	75,253
33	9	21600	44,086	31,913	88,497
34	10	21600	47,724	33,509	1,04,073
35	11	21600	51,661	35,184	1,22,390
36	12	21600	55,923	36,943	1,43,930
37	13	21600	60,536	38,790	1,69,262
38	14	21600	65,531	40,730	1,99,052
39	15	21600	70,937	42,767	2,34,085
40	16	21600	76,789	44,905	2,75,284
41	17	21600	83,124	47,150	3,23,734
42	18	21600	89,982	49,508	3,80,712
43	19	21600	97,406	51,983	4,47,717
44	20	21600	1,05,442	54,582	5,26,515
45	21	21600	1,14,140	57,311	6,19,182
46	22	21600	1,23,557	60,177	7,28,158
47	23	21600	1,33,751	63,186	8,56,314
48	24	21600	1,44,785	66,345	10,07,025
49	25	21600	1,56,730	69,662	11,84,261
50	26	21600	1,69,660	73,145	13,92,691
51	27	21600	1,83,657	76,803	16,37,805
52	28	21600	1,98,809	80,643	19,26,058
53	29	21600	2,15,210	84,675	22,65,045
54	30	21600	2,32,965	88,909	26,63,693
55	31	21600	2,52,185	93,354	31,32,502
56	32	21600	2,72,990	98,022	36,83,823
57	33	21600	2,95,512	1,02,923	43,32,176
58	34	21600	3,19,891	1,08,069	50,94,639
59	35	21600	3,46,282	1,13,472	59,91,295
60	36	21600	3,74,851	1,19,146	70,45,763
	Total	777600	46,35,077	20,70,065	4,69,41,053

Invested	20,70,065
FV	4,69,41,053
Gains	4,48,70,989
TAX	44,77,099
Corpus	4,24,63,954
Total Corpus of EPF + MF	4,70,99,032

By contributing towards your retirement corpus through SIP and EPF, you can accumulate a sizable amount of Rs. 4,70,99,032 by the time you retire at 60. This calculation excludes Long Term Capital Gains (LTCG) tax on SIP investments.

Here's a breakdown of the contributions:

EPF: Rs. 7,77,600 (assuming constant contribution of Rs. 1800 per month till retirement)

SIP: Rs. 20,70,065 (assuming a 12% annual return and 5% annual increment in SIP amount)

Scenario 3. I am 25 years old and not an employed person. I have my own business. I am starting an SIP. The amount is the same what an employed person with a Rs 30,000 basic salary would have contributed to EPF had he opted for a full 12% limit (As in Scenario 1). I will also increase my SIP contribution by 5% every year. What will be my corpus amount at 60? Please exclude long-term capital gain tax from corpus.

Scenario 3		Invested Value
Age	Year	MF	FV
25	1	43,200	48,384
26	2	45,360	56,900
27	3	47,628	66,914
28	4	50,009	78,691
29	5	52,510	92,540
30	6	55,135	1,08,827
31	7	57,892	1,27,981
32	8	60,787	1,50,506
33	9	63,826	1,76,995
34	10	67,017	2,08,146
35	11	70,368	2,44,779
36	12	73,887	2,87,861
37	13	77,581	3,38,524
38	14	81,460	3,98,104
39	15	85,533	4,68,171
40	16	89,810	5,50,569
41	17	94,300	6,47,469
42	18	99,015	7,61,423
43	19	1,03,966	8,95,434
44	20	1,09,164	10,53,030
45	21	1,14,622	12,38,364
46	22	1,20,354	14,56,316
47	23	1,26,371	17,12,627
48	24	1,32,690	20,14,050
49	25	1,39,324	23,68,522
50	26	1,46,291	27,85,382
51	27	1,53,605	32,75,610
52	28	1,61,285	38,52,117
53	29	1,69,350	45,30,089
54	30	1,77,817	53,27,385
55	31	1,86,708	62,65,005
56	32	1,96,043	73,67,646
57	33	2,05,845	86,64,352
58	34	2,16,138	1,01,89,277
59	35	2,26,945	1,19,82,590
60	36	2,38,292	1,40,91,526
	Total	41,40,129	9,38,82,106

Invested	41,40,129
FV	9,38,82,106
Gains	8,97,41,977
TAX	89,64,198
Corpus	8,49,17,909

By starting a SIP with an annual contribution of Rs 43,200 and increasing it by 5% every year, you can accumulate a corpus of approximately Rs 8.49 crore by the time you reach 60 years old. Here's a breakdown:

Total Invested Amount: Rs 41,40,129 (matches Scenario 1)

Future Value (without capital gains tax): Rs 9,38,82,106

Estimated Capital Gains (not taxed): Rs 8,97,41,977

Corpus Amount (after excluding capital gains tax): Rs 8,49,17,909

The workings conclude that investing in a Systematic Investment Plan (SIP) can potentially generate a larger retirement corpus compared to Employee Provident Fund (EPF) alone. This is because SIPs allow for higher returns (assumed 12% vs 8.25% for EPF).

Published At: May 09, 2024 05:23 pm

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