There is great news in store for subscribers of retirement fund -- Employees’ Provident Fund (EPF) – who are likely to get the entire 8.5 per cent declared interest rate for FY2019-20 at one go as Employees’ Provident Fund Organisation (EPFO) has been able to sell its equity holdings and earn higher-than-expected returns in the month of December due to the market rally.
EPFO has now double the surplus projected three months back, according to an unnamed senior EPFO official in a Business Standard newspaper report.
According to the report, the Union Labour and Employment ministry have written to the finance ministry, seeking 8.5 per cent interest to be credited into around 190 million EPF accounts for 2019-20.
“The recommendation is pending approval of the finance ministry which is expected to come within a week. The labour ministry has proposed to notify the interest rate at one go now,” a top government official was quoted as saying in the business daily.
Earlier in September, the central board of trustees (CBT) had announced that EPFO would be crediting the interest in two instalments for the first time as the retirement fund was not able to liquidate its equity investments due to the market fall caused by COVID-19 pandemic. As a result, EPFO had decided to credit 8.15 per cent interest (earned from its debt investments) with immediate effect and the remaining 0.35 per cent interest (capital gain from equity investments) later subject to its redemption.
The retirement fund body invests up to 15 per cent of its incremental corpus in ETFs. In FY20, the EPFO’s equity investments accrued a return of minus 8.3 per cent, down from 14.7 per cent in FY19.
The sharp rebound in the equity markets in October, November and December means EPFO has been able to liquidate its equity investments at profit.
EPFO had given 8.65 per cent interest in FY19 and the 8.5 per cent interest for FY20 is a seven-year low. But the fall in EPF interest for FY20 is much lower than the overall fall in market interest rate on similar products. The coronavirus pandemic has resulted in fall of fixed deposit interest rates by nearly 150 basis points over the last one year.