New Delhi (NVI): The 228th meeting of the Central Board of Trustees, EPF, has recommended an 8.50 percent annual rate of interest to be credited on EPF accumulations in members’ accounts for the financial year 2020-21.
Since FY 2014, Employee’s Provident Fund Organisation (EPFO) has consistently generated returns not less than 8.50 percent.
EPFO has more than five crore active subscribers. For 2019-20, EPFO had provided an interest rate of 8.5 percent and for 2018-19, 8.65 percent.
The interest rate would be officially notified in the government gazette following which EPFO would credit the rate of interest into the subscribers’ accounts, according to a statement issued by the Ministry of Labour & Employment.
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. The risk appetite of EPFO is very low since it involves investing poor man’s retirement savings also,” the statement 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, it added.
During the period from 2015-16, EPFO had started investing in equity through exchange-traded funds (ETFs) based on the NSE 50 and BSE 30 indices. The investment in equity assets started from 5% for FY 2015 and subsequently gone up to 15% of the incremental portfolio.
For FY 2021, EPFO decided to liquidate an investment in and the interest rate recommended is a result of combined income from interest received from debt investment as well as income realized from equity investment.
This has enabled EPFO to provide a higher return to its subscribers and still allowing EPFO with a healthy surplus to act as a cushion for providing a higher return in the future also. There is no over-drawl on the 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,” the ministry stated.