The biggest misconception about EPF interest! Your PF balance grows this way, not on a monthly basis..
The Employees' Provident Fund Organisation (EPFO) has initiated the process for crediting 8.25% interest for the financial year 2025-26. It is expected that this interest will start appearing in employees' EPF passbooks by July 15. However, many salaried individuals wonder why the interest does not appear in their accounts every month, given that the calculation is done monthly. Let us understand this in simple terms.
**Interest is credited to the account once a year, not monthly**
People often assume that since EPF earns 8.25% annual interest, approximately 0.69% interest is deposited directly into the account each month. However, this notion is incorrect. In reality, while the EPFO does calculate interest on your PF account balance every month, it does not credit that amount to your account monthly. The total interest accrued over the financial year is credited to the account in a lump sum after the year ends. Consequently, the interest does not appear in the passbook mid-year, even though interest continues to accumulate on your funds.
**Understand the calculation with an example**
Suppose you have ₹5 lakh in your PF account on April 1st. You and your employer collectively deposit ₹10,000 every month. In this scenario, the interest for April will be calculated on the ₹5 lakh balance. In May, after the new contribution is added, the balance increases, and the interest is then calculated on a higher amount than before.
This process continues throughout the year. With the addition of new contributions each month, the principal amount grows, and the interest for the following month is calculated on this increased sum. This is why your PF fund grows at an accelerating pace.
**The significant benefit of compounding**
If you and your employer deposit a total of ₹1.2 lakh over the year, the interest is not calculated solely on the initial balance; instead, it is determined based on the balance as it grows each month. This is the effect of compounding. According to Balasubramanyam A.K., Senior Vice President at TeamLease Services, interest calculation on every new contribution begins in the very month it is deposited. However, since this interest reflects in the account only once a year, many people mistakenly believe they are not earning any returns on their PF in the interim.
**EPF Remains a Top Retirement Scheme**
Experts state that the EPF remains one of India's most reliable retirement savings options. An annual return of 8.25% is considered superior to many traditional fixed-income investment options. Additionally, it offers tax benefits and employer contributions, which accelerate the growth of your savings. If an employee contributes regularly to the PF for 25 to 30 years, they can build a substantial corpus by the time they retire.
**Points to Remember**
Employees should periodically check their EPF passbook to ensure the employer is depositing the PF on time each month. If a company delays the PF deposit, the timing of interest accrual on that contribution could also be affected.
**What is the Most Important Thing?**
Although EPF interest does not appear in your account every month, this does not mean your savings are not growing. The EPFO calculates interest on the accumulating balance every month but credits the total annual interest to your account in a lump sum. Regular contributions, long-term investment, and the power of compounding make the EPF one of the strongest retirement savings schemes available.
Disclaimer: This content has been sourced and edited from News18 Hindi. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
