BackEPF interest rate declaration likely today, five things to watch out for
In 2018-19 the EPF paid a rate of 8.65%, 10 basis point more than 2017-18. In 2016-17 it was at 8.55%, the same as 2017-18
PremiumNEW DELHI : Retirement fund manager, Employees Provident Fund Organization, will likely announce the interest rate on PF deposits of over 60 million active subscribers today.
Here are the five things you need to know:
EPFO Central Board meeting: The central board of trustees of the EPFO comprising representatives of employees, employers and governments both at the centre and some member states will meet on Thursday to take a call on several issues including the much-awaited interest rate for 2019-20 financial year, changes in investment pattern and way forward on its investments in troubled firms like IF&FS and DHFL.
Interest Rate: There has been a constant demand from workers that the EPF interest payout should be higher, more so because of its investments in the stock market via exchange traded fund. But the retirement fund manager is yet to come to a decision on how it wants to pass on stock market investment gains to subscribers. All said, it will be tough for the EPFO this year to offer more than the 8.65% rate it offered in 2018-19. There is a good possibility that 2019-20 returns may be lower than last fiscal’s by 15-25 basis points.
In 2018-19 the EPF paid a rate of 8.65%, 10 basis point more than 2017-18. In 2016-17 it was at 8.55%, the same as 2017-18, while in 2015-16 it had offered 8.8% as rate of interest to its subscribers.
What may hold back EPFO to pay more?
The retirement body invests 15% in equity market and 85% in debt instruments. The falling rate cycle in the debt investments would have hampered its income in 2019-20. For example, some long term fixed deposits and bond yields fell 50-90 basis points in 2019, as per EPFO estimates. Besides, last year, after an 8.65% payout ahead of the general elections, EPFO was left with a surplus of little over ₹150 crore, much below the levels maintained earlier. In 2017-18, the surplus was at ₹586 crore.
What about increasing the minimum statutory pension for EPF subscribers?
Though the demand for increasing minimum pension has been on the table for years, the EPFO has hesitated to raise it. An internal committee of the labour ministry has favoured doubling the minimum pension amount to ₹2000 from ₹1000 now, but neither the EPFO nor its controlling labour ministry can take a call on hiking the pension without a go-ahead from the finance ministry. A minimum statutory pension hike will cost the central government an extra Rs2500 crore-Rs4000 crore per year.
Investment pattern: The EPFO central board is likely to approve a plan to allow the fund manager to formally invest in debt ETFs. When EPFO started investing in the stock market through ETFs, there were no provisions for debt ETFs but now the situation has changed, with the finance ministry also in favor of the move.
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