Employees’ Provident Fund Organisation (EPFO) on Wednesday slashed interest rate for the popular saving scheme from 8.65 percent in 2016-17 to 8.55 percent in 2017-18, which is a cut of 10 basis points. The new rate returns a five year low interest.
In November last year, EPFO had indicated that it may cut interest rate on PF scheme with a senior official saying, "Employees Provident Fund Organisation may cut rate of return on provident fund deposits for 2017-18 due to lower income on bonds and its plan to credit ETF investments directly into the account of subscribers," according to PTI.
On Wednesday after the EPFO trustees meet, labour minister Santosh Gangwar told reporters, “It is difficult to evaluate about future in view of present economic scenario. We paid 8.65% last fiscal, which left a surplus of Rs 695 crore. This year, we have decided to recommend 8.55% for 2017-18, which will leave a surplus of Rs 586 crore.” .
This is the second consecutive year for which the retirement fund body has gone for a cut in its key interest rate for provident fund investors. As many as 6 crore subscribers of EPFO will be affected from the announcement. Here is an explainer:
One, the EPFO functions under the labour ministry of the central government and runs the premier PF saving scheme. The Central Board of Trustees is the top decision making body at the organisation. On Wednesday it held its 220th meeting in New Delhi, according to a report in The Economic Times.
Two, the 8.55 percent interest rate is lowest in five years. Once the CBT lowers or increases it, the proposal then goes to the finance ministry which takes a final call on it.
Three, in order to generate more funds and increase its income from non-PF sources, the EPFO invests money in the stock market through exchange traded funds (ETFs). The retirement fund bod sold Rs 3,700-crore equity shares which returned it a profit of Rs 1,100 crore, the report said.
Four, the EPFO has invested around Rs 44,000 crore so far in the ETFs. It had started investing in ETFs in August 2015. On the administrative charges, Gangwar said the CBT has decided to reduce the administrative charges from 0.65% to 0.50 percent of total wages which are paid by employers, PTI reported. The minister also said the trust has also decided to reduce the workers threshold for coverage under the EPFO schemes to ten from existing 20.
Five, at present, all those units employing 20 or more employees are mandatorily covered under the social security schemes run by the EPFO. He expressed hopes that reduction in employees threshold could help increase the EPFO subscribers’ base from existing six crore to even nine crore.
Updated Date: Feb 22, 2018 13:05 PM