The finance ministry has approved the labour ministry’s proposal for crediting 8.5% interest on Employees’ Provident Fund (EPF) deposits for the financial year 2019-20. The move that will benefit nearly six crore subscribers of the Employees Provident Fund Organisation (EPFO).
A senior government official said that the interest rate will soon be notified by the labour ministry.
EPFO’s Central Board of Trustees, the apex decisionmaking body under the labour minister, had in March this year approved 8.5% interest rate on EPF for 2019-20. However, in September, the retirement fund body had decided to split payment of 8.5% interest into two tranches of 8.15% and 0.35% as its equity investments were still in losses.
Employees Provident Fund Organisation (EPFO) had decided to credit 8.15% interest (earned from its debt investments) immediately and the remaining 0.35% interest (capital gains from equity investments) was subject to redemption of investments, the retirement fund body had said earlier.
The retirement fund body invests up to 15% of its incremental corpus in ETFs. According to the media report, in FY20, EPFO’s equity investments accrued a return of minus 8.3%, down from 14.7% in FY19.
However, after the rally in equity market beginning October, which took benchmark indices to record highs, the EPFO has reportedly managed to book massive profit on its equity investment and decided to credit the 8.50% interest amount in one go.
Worth mentioning here is that the interest rate of 8.5% on provident fund deposits is the lowest in seven years. This is 15-basis points lower than 8.65% announced for 2018-19.
Payment of the interest rate of 8.5% would leave the retirement fund body with a surplus of Rs 700 crore, as estimated earlier by its Finance Investment and Audit Committee, the leading newspaper mentioned.
The finance ministry has been nudging the labour ministry for aligning the EPF interest rate with that of other small saving schemes, which have been linked to G-Sec rates.