EPFO to pay 8.5% interest rate in tranches of 8.15% & 0.35%

NEW DELHI: The Employees Provident Fund Organisation (EPFO) has decided to recommend to the finance ministry 8.5% interest rate on provident fund for formal sector employees for 2019-20. However, it it will be paid in two tranches because of a shortfall in EPFO’s income due to the impact of Covid-19 on financial markets.
The first tranche of 8.15% will be paid from the debt income and the balance 0.35% from sale of exchange-traded funds subject to their redemption by December 31, an official statement said.
This is being treated as a one-time measure in view of the exceptional circumstances. The 8.5% rate is the lowest in seven years and the staggered payment is the first of its kind in the retirement body’s history. Sources said the total payout would be about Rs 61,000 crore.
TheEPFO’s shortfall is estimated at Rs 2,500 crore. It will sell its holding worth Rs 2,800 crore. The retirement body has been plagued by shortfalls over the years and has struggled to pay the interest rate which still fetches one of the best returns when compared to other instruments in the market.
The 8.5% rate will be notified after the labour and employment ministry gets the finance ministry’s nod. At 8.5%, it works out to over 11% pre-tax return for those in the 30% tax bracket. The public provident fund is now at 7.1% while fixed deposit rates have turned negative for now due to a rise in retail inflation rate.