Employees’ Provident Fund (EPF) is a retirement savings scheme for organised sector employees, and offered a fixed interest rate of 8.25% in the year 2024-25. On the other hand, there are equity investments such as shares and mutual funds that can provide significantly higher returns compared to most fixed rate investment options in the long term. But can 8.25% EPF returns help an employee match 16% annualised equity returns in 5 years?
It is difficult to believe, but in a LinkedIn post, chartered accountant Nitesh Buddhadev explains unique situations where it can be possible.

The CA takes the examples of two new tax regime employees with Rs 26 lakh gross salary and Rs 1 lakh basic pay each. Both these employees joined their service after September 1, 2014, with a basic salary and dearness allowance (DA) of over Rs 15,000.

He says that if the first employee opts for a 12% EPF limit, their monthly EPF contribution will be Rs 12,000. If the employer also matches the amount and contributes Rs 12,000, the total monthly contribution will be Rs 24,000. The complete 24% goes towards EPF because EPS in not available to employees joining after 1, September 2014 and having basic salary above Rs 15000.

Buddhadev says that the employer’s contribution is not taxable in the employee’s hands, even under the new tax regime.

In contrast, the CA gives the example of another employee who opts out of EPF and decides to invest Rs 24,000 in equity. New employees, joining after 1 September 2014 and having basic salary above Rs 15000 have the option to opt out of EPF.

The CA says that since this employee needs to pay a tax on the increased portion of salary of Rs 12,000 (which would have been the employer’s EPF contribution), their effective equity investment will be Rs 20,256 instead of Rs 24,000.

He calculated a tax of Rs 3,744 at a 30% flat tax rate plus a 4% health and education cess.

How the taxation impacts the overall returns on EPF and equity investmentsCA calculated the EPF corpus of first employee at 8.25% interest rate for a 5-year period. As per his calculations-

EPF corpus = Rs 17.75 lakh

Now let us compare it with various levels of equity returns for second employee who is contributing only Rs 20,256 (due to no tax advantage).

In case the returns from equity are 11% during the concerned 5 year period
Equity corpus ( after capital gain tax) = Rs 15.75 lakh

He says that even though equity gave higher returns of 11%, PF still beat it with mere 8.25% returns — purely because of the tax edge.

He says that EPF enjoys the EEE status, where the exemption is on contributions (employer contribution in both regimes, employee contribution in the old regime), while the interest and the withdrawal amount after 5 years of service are also tax-free.

Now let us see how much returns equity investment is required to generate to achieve Rs 17.75 lakh corpus in 5 years

The CA says that to achieve the target of Rs 17.75 lakh, the equity investor needs a 16% (post-tax) annualised return for 5 years.

This required return for equity to beat EPF corpus, however, will decrease as the investment duration increases, the CA’s calculation shows.

12.3% CAGR over 10 years11% CAGR over 15 years10.35% CAGR over 20 yearsEPF vs Equity: Things to rememberContrary to the assumption by CA, in practice, most employers put an EPF contribution capping of Rs 1,800/month. Adding the Rs 1,800 employee contribution to it, the total monthly EPF contribution becomes Rs 3,600.

The EPF interest rate is subject to review every year. As per the data available on the EPFO website, the interest rate for most of the 1990s was 12%. In the last 10 years, the highest rate has been 8.8% in 2015-16.

Getting equity returns of 16% is not easy even in the long run. If we look at the 10-year equity mutual fund return category performance, only the small cap and some thematic equity categories have delivered more than 16% return, as per Value Research data as on August 28, 2025.