PF rate at 5-year low
New Delhi: The state-run Employees' Provident Fund Organisation (EPFO) on Monday cut the interest rate for the financial year 2017-18 to a five-year low of 8.55 per cent.
The rate, which will affect a six-crore-strong workforce, was trimmed by 10 basis points from last year's rate of 8.65 per cent.
This is the third straight year that the provident fund organisation has cut the interest rate. The EPFO manages a corpus of over Rs 11 trillion.
Despite the cut, the interest rate of the EPFO is higher than what is offered by other long-term investment schemes. While the Public Provident Fund offers an interest rate of 7.6 per cent, the Post Office senior citizen savings scheme offers an interest rate of 8.3 per cent.
"It is difficult to evaluate the future in view of the present economic scenario. We paid 8.65 per cent last fiscal, which left a surplus of Rs 695 crore. This year, we have decided to recommend 8.55 per cent for 2017-18, which will leave a surplus of Rs 586 crore," labour minister Santosh Gangwar told reporters#after a meeting of the trustees of the EPFO.
Gangwar , who also heads the EPFO's apex decision-making body, the Central Board of Trustees, said he expected the finance ministry to approve the interest rate that was decided on Wednesday. He expressed the hope that trade unions would accept the rate cut.
The minister said the EPFO received an 8 per cent return on its bond investments but was able to offer the 8.55 per cent rate on PF deposits because it had sold Rs 3,700 crore worth of investments in exchange-traded funds on which it earned a return of Rs 1,011 crore.
The EPFO has invested around Rs 44,000 crore so far in the ETFs. It had started investing in ETFs in August 2015.
He said the board of trustees had decided to reduce the administrative charges from 0.65 per cent to 0.50 per cent of total wages, which would reduce the burden on employers.
The minister said the trust had decided to reduce the workers' threshold for coverage under the EPFO schemes to 10 from the existing 20. At present, all units employing 20 or more employees must come within the ambit of EPFO.