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EPF meet: FY22 rate may be higher than return on its own investments

The EPFO’s Central Board of Trustees (CBT) had in March last year finalised a recommendation of 8.5 per cent interest rate for the previous financial year 2020-21, which though was the same as last year’s, was the lowest offered by EPFO in eight years.

By: ENS Economic Bureau | New Delhi |
March 7, 2022 3:20:31 am
Employees Provident Fund Organisation, Central Board of Trustees, EPFO, Business news, Indian express business news, Indian express, Indian express news, Current AffairsThe gross amount invested by the EPFO in the equity-linked exchange traded funds between August 5, 2015 to March 31, 2021 is Rs 1,37,895.95 crore, of which Rs 32,070 crore was invested in 2020-21.

The Employees’ Provident Fund Organisation will meet on March 11-12 in Guwahati to decide on the interest rate for its subscribers for the financial year 2021-22. The EPFO’s Central Board of Trustees (CBT) had in March last year finalised a recommendation of 8.5 per cent interest rate for the previous financial year 2020-21, which though was the same as last year’s, was the lowest offered by EPFO in eight years.

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The EPF interest rate is expected to be higher than the rate of returns it has got on its investments and is unlikely to see a sharp change, a CBT member said. The retirement fund body earned net interest of Rs 72,811 crore in 2020-21 on investments including equity related investments from the contributions from the establishments managed by it, as per its latest annual report. The EPF’s return on debt instruments in 2020-21 was 6.87 per cent. The gross amount invested by the EPFO in the equity-linked exchange traded funds between August 5, 2015 to March 31, 2021 is Rs 1,37,895.95 crore, of which Rs 32,070 crore was invested in 2020-21.

Over the years, the Finance Ministry has questioned a relatively high rate retained by the EPFO and nudged it to reduce the rate to a sub-8 per cent level in line with the overall interest rate scenario. The EPFO rate continues to be the highest among other savings instruments. Small savings rates range from 4 per cent to 7.6 per cent, and have been kept unchanged in recent quarters despite a fall in overall market rates.

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Over the years, the Finance Ministry has questioned a relatively high rate retained by EPFO and has been nudging it to reduce the rate to a sub-8 per cent level in line with the overall interest rate scenario.

The Finance Ministry had questioned 2019-20 interest rate and the 2018-19 interest rate of 8.65 per cent as well, besides the EPFO’s exposure to IL&FS and similar risky entities. In September 2020, the CBT recommended splitting the payment of the interest for FY20 into two parts, citing “exceptional circumstances arising out of Covid-19.” However, from January 2021 onwards, the EPFO began to credit the interest in one go. The CBT recommends the rate for EPF subscribers, which is then ratified by the Finance Ministry.

The EPFO has settled 2.69 crore claims, disbursing an amount of Rs 90,567 crores to members from April 1, 2021 to January 31 this year. The Board will also discuss preliminary reports of four sub-committees constituted in November. The panels have been formed for establishment-related matters, futuristic implementation of the Social Security Code, digital capacity building and pension related issues.

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