What is Core & Satellite strategy?

Arpita from Ahmedabad is thinking of withdrawing money from her PF account. She will use this money for her home renovation. Employees Provident Fund Organization i.e. EPFO ​​has not yet added the interest for the year 2022-23 in subscribers’ accounts. Arpita fears that if she withdraws the money, she will suffer loss of interest. So, when and how is interest added to the PF account? How is interest calculated? Let’s find out – PF is deducted in private sector companies which have more than 20 employees. 12 percent of the employee’s basic salary is deposited in the PF account.

The same amount of money is contributed by the organisation, but 8.33 percent of the company’s 12 percent contribution goes towards the Employee Pension Scheme. The remaining 3.66 percent goes to the employee’s PF account. Employees who joined their jobs after September 2014 and whose basic salary is more than Rs 15,000, are not covered under the pension scheme. Earlier, the employees had been given the option to contribute to the pension on the entire basic salary.

If Arpita’s basic salary is 50,000 rupees, then, 6,000 rupees will go to her PF account at the rate of 12 percent. The company’s contribution will also be 6,000 rupees. Arpita’s contribution to the pension fund is being deducted at a basic salary of 15,000 rupees. In such a situation, Rs 1,250 will go to the pension account at the rate of 8.33 percent. That is, the total contribution was 12,000, out of which Rs 1,250 will go to her pension account. While, 10,750 rupees will be added to her PF account. If Arpita is working on cost to company i.e. CTC, then, the contribution on both sides will be deducted from her account. However, Rs 10,750 will be deposited in the PF account every month.

Now let’s find out how interest is calculated. Money is deposited in the PF account of the employees every month, so the interest is also calculated every month. Interest is calculated on the amount present in the PF account at the beginning of the month i.e. opening balance. Monthly interest is calculated by dividing the annual interest rate by 12. For example, Arpita’s PF account had a deposit of 4,00,000 rupees on September 1, 2022, and the interest rate on PF for the financial year 2022-23 is 8.15 per cent. The simple interest formula is – Principal multiplied by Interest Rate multiplied by Time divided by 12 into 100. So, the interest for September (4,00,000×8.15×1/12×100) will be 2,717 rupees. In September itself, 10,750 rupees will be deposited in Arpita’s account. In September, she will not get interest on this amount. From the next month i.e. October 2022, the interest will be calculated at 4,10,750 rupees. She will get an interest of 2,790 rupees on this amount.

But the interest that is calculated every month is not deposited in your account every month. This interest will continue to be accummulated month after month… At the end of the financial year i.e. after March 31, this interest will be deposited in your PF account. Then this interest will also be added to your PF balance. There is no interest on the amount deposited in the pension account.

Like Arpita, interest for the year 2022-23 has not yet been deposited in the PF account of a large number of people. In such a situation, what will happen if Arpita withdraws two lakh rupees now?

According to EPFO, there will be no loss to the employee if there is a delay in interest payment. Interest will be calculated according to the amount deposited in the account every month. If you withdraw money from the PF account, then the interest on the entire amount will be calculated till the day of withdrawal. If a person is closing the account in September 2023 after retirement. And, the interest for the current financial year has not been fixed yet… So in such a situation, the account will be closed by paying interest on the basis of last year’s rate.

Arpita can withdraw money from the PF account at any time to meet her needs. This will not cause any interest loss. Interest on PF is calculated on the basis of opening balance of every month. If there is a delay in interest payment, it will not affect you.