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8.25% vs 16% Per Annum: Can Your EPF Returns Beat Equity? CA Explains
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Apart from retirement planning and pension, the EPF scheme also offers tax benefits, which are not available under mutual fund equity investments.
For FY 2024-25, the EPF interest rate has been set at 8.25 per cent. (Photo Credit: Instagram)
The Employees’ Provident Fund (EPF) scheme offers an opportunity to salaried workers in the private sector to build a retirement corpus. The government-backed scheme has been designed to offer financial protection to the private sector employees in their retirement years. Under the scheme, an employee contributes 12% of the basic salary and dearness allowance every month. An equal amount is also contributed by the employer.
It offers a secure and fixed interest rate, which has been set at 8.25 per cent per annum for FY 2024-25.
On the other hand, there are equity assets, such as stocks and mutual funds, that come with the potential of delivering much higher long-term returns than most fixed-rate investment options.
However, the question here is, can 8.25% EPF returns beat a potential 16 per cent annual return from equity schemes over a horizon of 5 years?
CA Compares EPF and Equity Returns
In a recent LinkedIn post, Chartered Accountant Nitesh Buddhadev explained how the EPF investments can beat the equity schemes despite lower returns.
He took the example of two employees having a gross income of Rs 26 lakh and a basic pay of Rs 1 lakh each. Both of these individuals began their employment after September 1, 2014, with a base wage and dearness allowance (DA) of more than Rs 15,000 per month. Both have opted for the new tax regime for filing their income tax returns (ITRs).
Adding to this, he shared that if the first employee chooses a 12 per cent EPF limit, the monthly EPF contribution will be Rs 12,000. As the employer matches the amount and pays Rs 12,000, the total monthly contribution to EPF will be Rs 24,000.
For the employees who joined after September 1, 2014, and get a basic salary of more than Rs 15,000, the entire 24 per cent goes to EPF, as they are not eligible for the Employees’ Pension Scheme (EPS).
Contrary to this, the CA uses the example of another employee who decided to opt out of EPF and instead invests Rs 24,000 in equity. New employees who join after September 1, 2014, and have a base salary of more than Rs 15,000 have the option to opt out of the EPF.
Now, according to the CA, since this employee is liable to pay tax on the increased portion of salary of Rs 12,000 (which would have been the employer’s EPF contribution), the effective equity investment will be Rs 20,256 rather than Rs 24,000.
The CA estimated a total of Rs 3,744 per month as tax liability, which included a 30 per cent flat tax rate and a 4 per cent health and education cess.
How Does Taxation Impact Overall Returns
The CA estimated the first employee’s EPF corpus at an interest rate of 8.25 per cent over a five-year period to grow into Rs 17.75 Lakh.
However, at an estimated 11 per cent return on equity investments during the same 5-year period, the corpus for the second employee (after capital gain tax) would grow into Rs 15.75 lakh.
Result? Even though the equity investments provided higher returns of 11 per cent, PF outperformed them with only 8.25 per cent returns due to the tax advantage.
Going by the calculation, the CA suggested that in order to reach a corpus of Rs 17.75 lakh, the equity investor must receive a 16 per cent (post-tax) annualised return over 5 years.
Though it may sound surprising, EPF can help you get higher returns compared to equity investments due to tax benefits.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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The cost of travelling on the London Underground, the Overground and the Elizabeth line is set to rise by 5.8% next year, the mayor of London has confirmed.
The increase is 1% above the rate of inflation and will come into force in March.
The freeze in national rail fares announced last month will not apply to Transport for London services.
Sir Sadiq Khan says he proposes to freeze the price of Travelcards until March 2027 which means the weekly and daily caps will not change, and fares on London buses and trams will not rise.
The mayor said a rise – equivalent to one percentage point above the RPI rate of inflation – was a condition of the £2.2bn capital funding deal that TfL agreed with central government in the spending review in June.
He said the freeze on bus and tram fares until July 2026 was “an emergency cost-of-living measure” funded by City Hall.
Sir Sadiq added: “This is the seventh time I’ve been able to freeze bus and tram fares, and it will particularly benefit those on the lowest incomes in our city.
“The plans would mean that only fares on Tube and TfL rail services would now increase from March 2026.
“I also plan to ensure that increases to pay-as-you-go fares on the Tube will be capped at 20p, with many only rising by just 10p.”
City Hall Conservatives criticised the announcement.
In a statement, they said: “Whilst the rest of the country enjoys a fare freeze, Sadiq Khan has burdened Londoners with cost increases that are disproportionately going to affect the young professionals that are the backbone of our city’s economy, as well the other millions of passengers who use these services.”
The Liberal Democrats said the mayor had “failed to make this case to his ‘mates’ in government like he promised he would, he’s now expecting working Londoners to stump up the costs instead”.
The fare rises will apply to all TfL-run rail services, including the Docklands Light Railway.
The mayor said the increase would mean an off-peak pay-as-you-go Tube fare from Tottenham Court Road in Zone 1 to Edgware in Zone 5 would rise from £3.60 to £3.80.
Pay-as-you-go fares on Tube and TfL rail services within Zone 1 only will rise from £2.90 to £3.10 in the peak, and from £2.80 to £3.00 during off-peak and weekends.
A peak-time journey from Upminster in Zone 6 to Cannon Street in Zone 1 will increase from £5.80 to £5.90.
The government capital funding deal is expected to help to replace aging fleets, upgrade signalling technology and improve buses.
The fare rises will be subject to a final decision by the mayor.
Business
EPFO Offers Low-Penalty Route For Employers To Enrol Left-Out Employees, Check How To Do It
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EPFO launches a six-month window for employers to declare left-out employees under Employees Enrolment Scheme 2025.
Under existing rules, all employees earning up to Rs 15,000 in basic pay must be enrolled in EPFO schemes.
The Employee Provident Fund Organisation (EPFO) has announced a six-month window for employers to declare left-out employees between July 01, 2017 and October 31, 2025. It will help them to regularise past compliance. It has the option to avail benefits under the Employees’ Enrolment Scheme 2025. The special six-month window is open between November 01, 2025 and April 30, 2026.
The regulator is offering several benefits to employers for declaring left-out employees under the scheme. One of the key benefits is a nominal penalty of Rs 100 per establishment for declaring left-out employees. Moreover, there will be no suo moto action during the scheme period against employers.
There is a provision to waive the employee share if not deducted.
All establishments, whether already covered or not covered under the
EPF & MP Act, 1952, are eligible to participate in the Employees’
Enrolment Campaign, 2025.
The objective of the EEC–2025 is to:
a. Facilitate voluntary compliance by employers in enrolling all eligible
employees left out of EPF coverage;
b. Enable employers to regularize past defaults with minimal penal
consequences; and
c. Broaden the social security coverage under the EPF & MP Act, 1952.
How Can They Declare?
Declarations can be filed online only through the EPFO Portal.
Employers will generate a Face Authentication–based UAN for
each declared employee using the UMANG App.
Contributions will be remitted using Electronic Challan-cum-Return
(ECR) linked to a Temporary Return Reference Number (TRRN)
generated during the declaration process.
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Transport giant FirstGroup has expanded into sightseeing buses after snapping up an operator in London and Bath.
The FTSE 250 company told shareholders it has acquired the UK sightseeing operations of French firm RATP Developpement SA for about £17 million.
It said the deal will help to grow and diversify its operations across key markets.
The acquired business runs under the Tootbus brand and runs 63 buses, 42 in London and 21 in Bath.
The Tootbus business also includes a large freehold depot in Wandsworth, southwest London, and a leased depot in Keynsham, Bath.
It said the London depot will help the group manage its operations in the capital and allow it to bid for additional Transport for London red bus route contracts.
The business, which also runs the Airdecker service from Bath to Bristol airport, employs about 190 people across its operations.
Tootbus’s UK operations reported revenues of £15.9 million in 2023 and delivered a roughly £600,000 operating loss for the year, the company said.
Graham Sutherland, FirstGroup chief executive, said: “The acquisition of the bus operations in London and Bath, in line with our UK-focused growth and diversification strategy, will allow us to further diversify and expand our footprint in two of our key markets.
“The integration of the businesses will also create material operational and cost synergies and the opportunity to grow our London route portfolio over time.”
Shares in FirstGroup were 1.5% higher on Thursday.
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