The Finance Ministry has accepted the labour ministry’s proposal for crediting 8.5% interest on provident fund deposits for 2019-20, a move that will benet nearly 60 million subscribers of the Employees Provident Fund Organisation.
In September, the retirement fund body had decided to split payment of 8.5% interest into two tranches of 8.15% and 0.35%.
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, it had said. The retirement fund body invests up to 15% of its incremental corpus in ETFs. In financial year 2019-20, the EPFO’s equity investments accrued a return of -8.3%, down from 14.7% in 2018-19. The interest rate of 8.5% 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 ₹700 crore, as estimated earlier by its Finance Investment and Audit Committee. The idea of splitting the interest rate into two was to ensure that EPFO does not have to delve into its savings as there were rampant withdrawals during the peak months of the pandemic. But EPFO took advantage of upsurge in equity markets and liquidated its equity investments. The Finance ministry has been nudging the labour ministry for aligning the EPF interest rate with that of other small saving schemes.