Interest rate on provident fund likely to remain at 8.5 in 2013-14

Provident fund returns are likely to match interest rate announced for the last fiscal year.

Provident fund returns are likely to remain unchanged at 8.5 per cent in 2013-14,matching the interest rate announced for the last fiscal year.

Bond yields have seen a significant drop but we are trying to ensure that the PF rate can be maintained at 8.5 per cent in this fiscal as well, an official involved in the exercise said.

Government securities and corporate paper are two main investment avenues for the Employees Provident Fund Organisation,which has recently decided to adopt the investment pattern notified by the finance ministry in 2008,even as it has opted to stay away from the mandatory 15 per cent investment in equities.

However,since last fiscal,bond yields have seen a significant drop,with the yield on 10-year benchmark government bonds at about 7.3 per cent as against over 8 per cent in 2012. This has a direct bearing on the EPFO,which can invest up to 55 per cent of its Rs 5 lakh crore corpus in Central and state government securities.

Earlier,the drop in yields of government securities had also impacted the return on small saving schemes such as the public provident fund.

Interest rate for the PPF and a number of other small savings scheme was lowered by 10 basis points for 2013-14.

The yield on some of the bonds that the EPFO invests in has come down by as much as 50 basis points,making it a difficult to match the returns for last fiscal, said one of the officials.

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The proposal will,however,be finalised by the new Central Provident Fund Commissioner Krishna Kumar Jalan. A 1982 batch IAS officer of Haryana cadre,Jalan is expected to take charge towards the end of this month.

The government is also keen that a decision on the PF returns for the fiscal is taken early,unlike last fiscal when it was taken up by the Central Board of Trustees only in February 2013. Consequently,it was ratified by the finance ministry in May this year.

Till then,subscribers withdrawing their PF deposits were being earning the interest rate of 8.25 per cent that was announced for 2011-12.