Retirement fund body Employees Provident Fund Organisation lowered the interest rate on deposits to 8.50 per cent for the current financial year FY20 from 8.65 per cent in 2018-19. The decision was taken at a meeting of the central board of trustees of the EPFO.
Now, the labour ministry requires the finance ministry’s concurrence on the matter. Since the Government of India is the guarantor, the finance ministry has to vet the proposal for the EPF interest rate to avoid any liability on account of a shortfall in the EPFO income for any financial year.
The finance ministry has been nudging the labour ministry to align the EPF interest rate with other small saving schemes run by the government, such as the public provident fund and post office saving schemes.
The move means that salaried employees would earn lower returns for the financial year ending March 31, 2020. The EPFO was offering subscribers an interest of 8.65 per cent in 2018-19. It had provided 8.65 per cent rate of interest for 2016-17 and 8.55 per cent in 2017-18. The rate of interest in 2015-16 was slightly higher at 8.8 per cent.
The EPFO invests 85 per cent of its annual accruals in the debt market and 15 per cent in equities through exchange-traded funds.
At the end of March last year, the EPFO had a cumulative investment of Rs.74,324 crore in equities, fetching a return of 14.74 per cent.