EPFO is likely to announce a 8.5% interest rate for FY2019-20 in one go as it has received good returns from the sale of exchange-traded funds (ETFs). It is in now in a position to transfer the entire tranche of interest payments to subscribers in a single instance. EPFO has been able to sell its equity holdings and earn higher-than-expected returns in December due to the market rally. EPFO has now double the surplus projected three months back
The Union labour and employment ministry have written to the finance ministry, seeking 8.5% interest to be credited into around 190 million EPF accounts for 2019-20. The recommendation is pending approval of the finance ministry which is expected to come within a week.
Earlier in September, the central board of trustees (CBT) had announced that EPFO would be crediting the interest in two instalments for the first time as the retirement fund was not able to liquidate its equity investments due to the COVID-led market fall. Hence EPFO had decided to credit 8.15% interest (earned from its debt investments) immediately and the remaining 0.35% interest (capital gain from equity investments) later subject to its redemption.
The retirement fund body invests up to 15% of its incremental corpus in ETFs. In FY20, the EPFO’s equity investments accrued a return of minus 8.3%, down from 14.7% in FY19. However, due to the sharp rebound witnessed in equity markets in October, November and December so far, EPFO has been able to liquidate its equity investments at profit.
EPFO had given 8.65% interest in FY19. The 8.5% interest for FY20 is a seven-year low. But the fall in EPF interest for FY20 is much lower than the overall fall in market interest rate on similar products. Worth mentioning here is that fixed deposit interest rates have fallen by nearly 150 basis points over the last one year.