A Provident Fund (PF) is a retirement savings scheme where both the employee and the employer contribute a portion of the employee's salary to a fund. This fund grows over time through regular contributions and compound interest. In many countries, including India, the Employees' Provident Fund (EPF) is a mandatory benefit provided by employers to their employees.
The PF Growth Formula
The formula for calculating PF growth over time is:
\[PF_{n} = PF_{n-1} \times (1 + r) + C\]
Where:
\(PF_{n}\) = PF balance at the end of year n
\(PF_{n-1}\) = PF balance at the end of the previous year
\(r\) = Annual salary hike rate (in decimal form)
\(C\) = Annual contribution (employee + employer)
Step-by-Step PF Calculation
Determine the current PF balance, monthly salary (basic + DA), contribution percentage, and expected salary hike.
Calculate the monthly contribution: (Basic + DA) × Contribution %.
Calculate the annual contribution: Monthly contribution × 12.
Determine the number of years until retirement.
Apply the PF growth formula for each year until retirement.
The final amount is the PF balance at retirement.
PF growth is the difference between the final amount and the initial balance.
Example Calculation
Let's calculate the PF growth for an employee with these details: