The central board of trustees at Employees Provident Fund Organisation (EPFO) has recommended 8.5 per cent interest for subscribers during 2020-21, the government said on Thursday.
The interest rate will be officially notified following which EPFO will credit the rate of interest into subscribers’ accounts, according to a statement issued by the Ministry of Labour and Employment.
The decision was taken at the 228th meeting of the central board held in Srinagar under the chairmanship of Union Minister of State for Labour and Employment (Independent Charge) Santosh Kumar Gangwar.
“Since FY14, EPFO has consistently generated returns of over 8.5 per cent. A high EPF interest rate along with compounding makes a significant difference to gains of subscribers,” said the statement.
“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.”
Over the years, EPFO 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 is considerably higher than other comparable investments avenues available for subscribers.
During 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 FY15 and subsequently went up to 15 per cent of the incremental portfolio.
For FY21, EPFO decided to liquidate investments and the interest rate recommended is a result of combined income from interest received from debt investment as well as income realised from equity investments.
“This has enabled EPFO to provide a higher return to subscribers and still allow healthy surplus to act as a cushion for providing a higher return in future also. There is no overdrawl on EPFO corpus due to this income distribution,” said the statement.
“The assured fixed return approach of EPFO announced by central board 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.”