Interest rate on provident fund still higher than other saving schemes

NEW DELHI: The labour ministry had last week lowered interest rate on Employees’ Provident Fund (EPF) deposits for the current financial year to a seven-year low of 8.5 per cent, but experts say this isn’t such a dampener, since the rates are still higher than that for many other small savings schemes.

In FY 2018-19, the Employees’ Provident Fund Organisation (EPFO) had provided 8.65 per cent interest on EPF deposits to its around 6 crore subscribers.

"The EPFO has decided to provide 8.5 per cent interest on EPF deposits for FY 2019-20 in the CBT (Central Board of Trustees) meeting," labour minister Santosh Gangwar said. He claimed that EPFO will have a surplus of over `700 crore on providing 8.5 per cent interest on EPF for this fiscal.

While the interest rate is 15 basis points lower than last year, much to the disappointment of employees across the country, experts say this is much higher than any other investment instrument.

"This is still not such a bad news. The return on EPF is markedly higher than the interest rates on offer in bank deposits, other small savings schemes and the 10-year yield on government securities in which the EPF invests most of its corpus," said Rahit Khanna, a senior executive at Angel Broking.

The EPF interest rate announced for this fiscal is the lowest since FY13, when it was 8.5 per cent. The rates were 8.8 per cent in FY16, 8.65 per cent in FY17 and 8.55 per cent in FY18. Since the Government of India is the guarantor, the finance ministry has to vet the proposal for EPF interest rate to avoid any liability on account of shortfall in the EPFO income for a fiscal.