With the continuous slide in stock markets in wake of the COVID-19 outbreak, the Employees’ Provident Fund Organisation (EPFO) is closely monitoring its equity markets-linked investments. Officials said the retirement fund body might find it tough to make its interest rate payout at over 8 per cent for the next fiscal, but, as of now, the recently announced rate of 8.5 per cent for 2019-20 still holds.
Separately, the Finance Investment & Audit Committee (FIAC) of the EPFO is planning to hold a special meeting soon to take stock of the investments of the EPFO amid the emerging market situation, they said.
Earlier this month, the Central Board of Trustees (CBT) of the EPFO recommended the interest rate to be cut to a seven-year low of 8.5 per cent for 2019-20 for its 6 crore active subscribers. The proposed 8.5 per cent rate will leave a surplus of Rs 700 crore with the retirement fund body, while retaining interest rate at last year’s 8.65 per cent would have left a deficit of around Rs 350 crore.
“We are closely monitoring the developing situation. Any downturn in markets will impact the EPFO investments and we are in constant discussion with all stakeholders. The interest rate of 8.15 per cent was decided after much deliberation. As of now, there’s no rethink on it,” an official said.
Another CBT member said the decision was taken by the Board and a rethink, if any, would have to be done by the Board itself. “The EPFO had exposure to some risky investments including IL&FS since last year. The current volatility in the markets is being closely watched and accordingly any investment related decision would be undertaken. The interest rate decision has been taken by CBT and any review will need to go through CBT but there’s no such plan as of now. The market downslide will have an impact on the interest rate calculations for the next year,” the member said.
EPFO invests 85 per cent of the funds in debt instruments and 15 per cent of the investments in ETFs. The interest rate recommendation of the CBT requires nod from the Finance Ministry as per convention. The Finance Ministry has been nudging the EPFO to reduce the rate to sub-8 per cent level, in line with the overall scenario. EPFO rate continues to be higher than the rate on most small savings instruments. The Centre is expected to reduce the interest rate for small savings for the April-June quarter.
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