New Delhi: Retirement fund body EPFO on Thursday decided to retain 8.5 per cent annual rate of interest on provident fund deposits for the current financial year for its more than five crore active subscribers.
The Employees’ Provident Fund Organisation’s (EPFO) apex decision-making body Central Board of Trustees decided to fix 8.5 per cent rate of interest for 2020-21 at its meeting in Srinagar on Thursday.
The 228th meeting of the CBT, EPFO was held on Thursday in Srinagar, Jammu & Kashmir.
The interest rate would be officially notified in the government gazette following which the EPFO would credit the rate of interest into the subscribers’ accounts, the statement said.
“For FY’2021, the EPFO decided to liquidate investment (in equity) and the interest rate recommended is a result of combined income from interest received from debt investment as well as income realised from equity investment.
This has enabled EPFO to provide higher return to its subscribers and still allowing EPFO with healthy surplus to act as a cushion for providing higher return in future also. There is no over-drawal on EPFO corpus due to this income distribution,” it said.
K E Raghunathan, an EPFO trustee said the EPFO would have a surplus of around Rs 300 crore on maintaining 8.5 per cent rate of interest for the current fiscal at par with 2019-20.
Since FY’2014, the EPFO has consistently generated returns of not less than 8.5 per cent.
A high EPF interest rate along with compounding makes a significant difference to gains of subscribers. This is despite the fact that the EPFO has consistently followed a conservative approach towards investment, putting highest emphasis on the safety and preservation of principal first approach.
Risk appetite of EPFO is very low, since it involves investing poor man’s retirement savings also, it added.
During the period from 2015-16, the EPFO started investing in equity through exchange traded funds based on the NSE 50 and BSE 30 indices.
The investment in equity assets started from 5 per cent for FY’2015 and subsequently went up to 15 per cent of the incremental portfolio.
The assured fixed return approach of the EPFO, announced by the CBT every year, along with the tax exemptions makes it an attractive choice for investors, providing them with strong social security in the form of provident fund, pension and insurance schemes, the ministry said.
In March last year, the EPFO had lowered interest rate on provident fund deposits to a seven-year low of 8.5 per cent for 2019-20, from 8.65 per cent in 2018-19.