The EPFO (Employees’ Provident Fund Organization) has already increased the EPF (Employees’ Provident Fund) interest rates to 8.65% for 2018-19 as compared to 8.55% which were the rates for last year. This is a decent increase indeed and EPFO has hiked the rates by 0.10%.
The interest rates were revised by the CBT (Central Board of Trustees) at the meeting held in the recent past.
The fund has retirement savings exceeding Rs. 11 lakh crore and is managed exclusively by the EPFO. The rate of interest was kept at 8.55% which was a low in almost 5 years for FY18. The rates were 8.65% for 2016-17 and 8.8% in 2015-16 along with being 8.75% in 2013-14. They were 8.5% for 2012-13. The move comes on the back of several sops and populist schemes declared by the Central Government prior to the Lok Sabha elections which are due this year in the April-May period. This increase in EPF interest rates is a major decision when it comes to attracting the salaried middle classes since EPF is a major chunk of savings plans for these individuals and is also one of the savings channels used widely by citizens across the country.
Why this assumes importance is because the linking of NSC, PPF and other small savings avenues to the G-Sec returns while the Government fixes the EPF interest rates based on the income that is generated majorly by investing in government securities.
EPFO will be cutting reserves to their lowest possible levels over the last three years as a result of this decision. However, at least 60 million subscribers, as mentioned earlier, will be benefiting and this will be a major boost for the Government ahead of the elections as per experts.
This increase by 10 basis points makes the EPF rate currently the same as the one seen in 2016-17 although it is lower than the rate of 8.8% that was paid in earlier years. The sop is naturally an extension of the efforts being made by the Government to please multiple voter segments or voter banks prior to the elections.
According to the Labour Ministry officials, the aim is to work unitedly for the welfare of the working classes and the increase in interest rates is a step in that direction.
According to reports, the calculations have already been executed by the EPFO and there would not be any deficits arising out of the increase in interest rates for EPF. The surplus for the EPFO will be just Rs. 151 crore post the payout of 8.65% as the interest rate for the current fiscal. This surplus amount stood at Rs. 586 crore for 2017-18 as per reports.
Since it is an election year, the EPFO will not be insistent on maintaining a higher surplus as the cushion for the upcoming year. Rs. 695 crore was the surplus amount for the EPFO after paying 8.65% in 2016-17. The EPF interest rate hike automatically contributes towards making it a really attractive investment option since NSC and PPF average interest rates stood at roughly 7.7% for 2018 as per reports. EPFO already manages more than Rs. 11 trillion as the corpus according to reports while there were fresh infusions of Rs. 1.31 trillion in 2017-18 with the annual deposit amount at Rs. 1.46 trillion for the year concluding on March 2019.
The fund manager will be investing 15% in equity from this corpus while the rest will be deployed in debt instruments which include corporate and government bonds. The CBT is yet to take a decision on increasing the minimum assured pension amount to Rs. 2,000 from Rs. 1,000. This will be taken up at subsequent meetings before any final decision is announced.
