New Delhi: In a major relief for India's working class, the Employees' Provident Fund Organisation (EPFO) has decided to keep interest rates on Provident Fund deposits for the financial year 2020-21 unchanged at 8.5 per cent.
On Thursday, the Central Board of Trustees, EPF, recommended 8.50 per cent annual rate of interest to be credited on EPF accumulations in members' accounts for the financial year 2020-21.
The interest rate would be officially notified in the government gazette following which EPFO would credit the rate of interest into the subscribers' accounts.
At 8.5 per cent, PF is generating maximum returns over various other savings instruments available to individuals. The bank fixed deposit rate has gone down to almost 5.5 to 6 per cent level, Kisan Vikas Patra is offering rate of 6.9 per cent, government's employees' GPF is giving 7.1 per cent, Sukanya Samriddhi Yojana 7.6 per cent, PPF 7.1 per cent, 5 year NSC 6.8 per cent, 5 year senior citizen savings scheme 7.4 per cent, recurring deposit 5.8 per cent, 5 year monthly income account - 6.6 per cent.
Since FY 2014 EPFO has consistently generated returns not less than 8.50 percent, said an official statement.
A high EPF interest rate along with compounding , makes a significant difference to gains of subscribers. This is despite the fact that 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.
EPFO over the years has been able to distribute higher income to its members, through various economic cycles with minimal credit risk. Considering the high credit profile of the EPFO investment, the interest rate of EPFO is considerably higher than other comparable investment avenues available for subscribers.
During the period from 2015-16 EPFO prudently 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.
For FY 2021, EPFO decided to liquidate investment in 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 cushion for providing higher return in future also. There is no over-drawl on EPFO corpus due to this income distribution.
The assured fixed return approach of EPFO, announced by 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.
According to Aarti Raote, Partner, Deloitte India: "The EPFO announcement of the PF rate at 8.5 per cent is a welcome news for all subscribers considering that all other interest rates are falling."
"There was anticipation that the Covid impact would be seen in PF interest also. However now that worry is put to rest."
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