How an EPF corpus increased 5500 times over 30 years of employment!

A EPF corpus valued at Rs. 1300 in the financial year 1983-84 grew to an astounding Rs. 71.9 lakh in 2014-15. Power of compounding at its best. Here is what we can learn from it.

Published on / By M. Pattabiraman Twitter: @pattufreefincal / 1 Comment

Published: January 12, 2020 at 11:26 am

Last Updated on December 29, 2021

In one of the best examples of the power of compounding, a EPF corpus valued at Rs. 1300 in the financial year 1983-84 grew to an astounding Rs. 71.9 lakh in 2014-15, an increase of 5534 times. A look at the numbers shared by one of the oldest readers of freefincal who prefers to be anonymous.

Naturally, this increase in the EPF corpus over the years includes salary hikes, bonuses, promotions, interest rate changes etc. but is nonetheless illustrates the power of compounding when the corpus is fortunate enough to grow undisturbed.

Before we begin, over 930  members have signed up for the video lecture series on Goal-Based Portfolio Management: Techniques to reduce fear, uncertainty, & doubt. This will discuss strategies to use and manage the right asset allocation no matter what the market condition is. Details about the course and joining.

Build a complete financial plan with our Robo Advisory Tool. More than 1000 investors and financial advisors use it!
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email! (Subscribers get exclusive discounts!)

New Tool! => Track your mutual funds and stocks investments with this Google Sheet!

Although the EPF interest can vary from year to year, it is known beforehand. Therefore the growth of an EPF corpus is an example of compound interest or compounding. That is, both the amount invested and previously accrued interest will receive interest.

Readers should recognize that the “power of compounding” or the “magic of compounding” or the “8th wonder of the world” does not apply to market-linked instruments like stocks, mutual funds, gold, oil etc.

Market-linked instruments neither have an “interest rate” associated with them nor increase every year. In fact, they can crash dramatically and their returns over the long term can be well below a traditional fixed income instrument before tax! This has been explained before: Don’t get fooled: Mutual funds have no compounding benefit!

https://www.youtube.com/watch?v=v7zGfjvZVwA

Growth of an EPF corpus

The corpus growth is shown in the featured image above is up to 2014-15. By the time the reader retired (early) in 2016-17, the corpus was 98.8 Lakhs, a 7446X increase. He estimates that the corpus could have grown to 1.75 Crores if he had retired normally!

This is the corpus growth along with the total contribution. For certain years the contribution data is missing.  The log scale in the bottom panel is necessary to show the impact of growth from the early years.

EPF Corpus Growth along with total contribution in normal scale (top graph) and log scale (bottom graph)
EPF Corpus Growth along with total contribution in normal scale (top graph) and log scale (bottom graph)

The hallmark of compounding is an explosion in growth in later years. So much that it pushes the initial year growth to the horizontal axis. The log scale is necessary to pull this up and show that the growth is always present. In fact, the interest rate in the 90s was double-digit and higher than in recent years.

What can we learn from this? As mentioned above, this has nothing to do with equity investing or mutual funds. This EPF corpus growth illustrates the importance of efficient money management more than the simple power of compounding.

In a fixed-income investment, Rs. 1 would grow at the same pace as Rs. 10. The key is to leave the corpus untouched as much as possible. This is the key to staggering growth. Naturally, additional contributions, promotions etc would have played a role but the key is to avoid withdrawals.

While a good dose of good fortune is necessary to avoid withdrawals or loans from PF, investors need to help the cause with efficient fortifications such as a robust emergency fund, large health insurance, accident insurance and life insurance.

Young earners who wish to orient their money management in the direction in 2020 can consult this free resource:  Re-assemble: Step by step money management basics for beginners
Please join me in thanking the reader for sharing his PF numbers with us.

Do share if you found this useful
Explore the site! Search among our 2000+ articles for information and insight!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video! ⇐ More than 1000 investors and advisors use this!
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 2800 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! ⇐ More than 675 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps