EPFO Proposes To Cut Interest Rate To 8.1%, Expects ‘Tapered’ Revenue

The Employees’ Provident Fund Organization has proposed to cut interest rate on provident fund deposits to its lowest level in over four decades.

An interest rate of 8.1% has been recommended for EPFO’s subscribers for the year 2021-22, compared with 8.5% in the previous 2020-21, according to a statement by the Ministry of Labor and Employment.

“For FY 2022, EPFO ​​decided to liquidate some of its investment in equities and the interest rate recommended is a result of combined income from interest received from debt investment as well as income realized from equity investment,” it said.

The rate will now be approved by the Finance Ministry. This is the lowest interest rate since 1977-78.

KE Raghunathan, member of Central Board of Trustees of the EPFO, told BloombergQuint that they reduced rates keeping in mind that revenue might taper this year because of the ongoing Russia-Ukraine crisis and the resulting market conditions. “This year we will make a surplus of Rs 450 crore at 8.1%. Had we maintained 8.5%, we would have been at a deficit of Rs 3,500 crore.”

Raghunathan is part of EPFOs sub-committee that met in Guwahati. The 2-day annual meeting of the EPFO ​​concluded on Saturday.

The meeting was also attended by Labor Minister Bhupendra Yadav, Minister of State for Labor and Employment Rameshwar Teli, Labor and Employment Secretary Sunil Barthwal, and Central PF Commissioner Neelam Shammi Rao.

The board also approved the revised estimates for the year 2020-21 and budget estimates for the year 2022-23 for schemes administered by EPFO.

“The board was informed that redemption of equity investment was carried out during the month of February 2022 which resulted in the realization of capital gains of Rs. 5529.7 crore which will be included in the income for FY 2021‐22,” the statemetn said. “The annualized rate of return on this investment was 13.91%, the highest in the last three years.”

The board also ratified the decision to redeem non-convertible debentures of Air India in EPFO’s portfolio. This redemption had helped EPFO ​​realize Rs 8,944.32 crore against the face value of Rs 7,772.50 crore, said the statement.

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