Provident fund maturity from monthly contributions and interest.
Maturity corpus
—
Total contributions
—
Interest earned
—
Worked example
Take a monthly salary of PKR 150,000 with the employee contributing 10% and the employer matching 10%,
earning 12% a year, over 20 years. The combined monthly contribution is 20% of 150,000, which is 30,000 a
month. The monthly rate is 12% divided by 12, or 1%, and there are 240 months. Treating the deposits as a
monthly annuity that compounds at 1%, the maturity corpus grows to about 29,677,661. Over those 240
months the total contributions add up to 7,200,000, so the interest earned is roughly 22,477,661, more
than three times what was paid in. The employer match effectively doubles every contribution, and
compounding over two decades does the rest, which is why an early start matters so much.
Item
Amount (PKR)
Combined monthly contribution (20% of 150,000)
Rs 30,000
Months
240
Total contributions
Rs 7,200,000
Interest earned
Rs 22,477,661
Maturity corpus
Rs 29,677,661
How it is calculated
A provident fund builds wealth through regular contributions that compound over time. Each month a
percentage of salary goes in from the employee and a matching percentage from the employer, and the tool
adds those two to get the combined monthly deposit. It then treats the stream of deposits as an ordinary
annuity, compounding at the monthly rate, which is the annual interest rate divided by twelve, across the
total number of months. The maturity corpus is the future value of that annuity, total contributions are
simply the monthly deposit times the number of months, and interest earned is the difference between the
two. Because the employer match doubles the effective saving rate and interest itself earns interest, the
corpus after twenty years or more is usually several times the amount paid in. Actual fund interest rates
are declared periodically and can vary year to year, so treat the result as a projection at a constant
assumed rate rather than a guarantee.
Frequently asked questions
How does a provident fund build up in Pakistan?
Each month a percentage of your salary goes in from you and a matching amount from your employer. The combined contribution earns interest, which is credited and then itself earns interest. Over many years this compounding produces a maturity corpus well above the total amount contributed. This tool compounds the monthly contributions at the annual rate you enter.
Is the interest on a recognised provident fund in Pakistan taxable?
Interest credited to a recognised provident fund is exempt from income tax up to the lower of one-third of the total salary or the interest credited at the notified rate. Employer contributions up to 10% of salary are also exempt. Amounts exceeding these limits become part of taxable income. Confirm the current exemption thresholds with the FBR, as they are reviewed periodically.
What happens to the provident fund if I resign before retirement?
Withdrawals from a recognised provident fund before completion of the prescribed service period, generally five years, may lose the tax exemption on the employer contribution and interest. The taxable portion is added to your income for the year of withdrawal. If you complete the full qualifying period, the full corpus is typically received tax-free. Check your fund rules and the FBR schedule before planning an early withdrawal.
How does the employer contribution rate affect the final corpus?
The employer contribution directly doubles the monthly deposit when it matches the employee percentage, which means every rupee you save is immediately worth two rupees in the fund. Because compounding works on the total balance rather than just your share, increasing the employer match has an outsized effect on the final corpus compared with simply increasing your own contribution rate by the same amount.