EPFO begins crediting 8.5% interest for close to six crore subscribers for 2019-20

Instead of two tranches as proposed earlier, retirement fund body Employees Provident Fund Organisation (EPFO) has started crediting 8.5% interest on the accumulated corpus of its close to six crore subscribers at one go from Thursday.

“We had said that it would be our endeavour to provide 8.5% rate of interest on EPF for 2019-20. We have issued a notification to provide the same. We have also begun the process to credit the said rate of interest into subscribers account,” labour minister Santosh Gangwar said in a video message on Thursday.

The directive came following the finance ministry ratification of the interest rate by EPFO’s highest decision-making body Central Board of Trustees (CBT), which it approved in March this year.

EPFO credits compound interest on monthly running balance based on the statutory rate declared for each year.

Earlier in September this year, the EPFO had decided to split the 8.5% interest into two instalments of 8.15% and 0.35% at its trustees meet, headed by Gangwar.

The EPFO’s outgo on providing returns to subscribers at the rate of 8.5% for the financial year 2019-20 is estimated at Rs 60,700 crore.

The labour ministry had earlier said the interest rate of 8.50% would comprise 8.15% from debt income and balance 0.35% (capital gain) from the sale of ETFs subject to their redemption by 31st December, 2020. Gangwar on Thursday said the redemption has been done.

Initially, the CBT chose to transfer only the income generated out of investments in bonds and other fixed income securities to the subscribers for the time being. EPFO’s return on equity investments, that are still less than 5% of the total EPF corpus, had fallen into the negative territory due to the stock market crash in March. Its plan to mobilise proceeds for the 0.35% part of the interest rate promised to subscribers from capital gains, to be realised from a section of its fledgling equity portfolio, therefore, went awry.

The board approved plan to sell ETF investments of Rs 6,000 crore made in 2016 and it hopes to fetch capital gains of Rs 2,700 crore via this transaction by December 31, 2020.