EPFO has started to pay 8.5% interest on its nearly six crore subscribers’ accrued corpus

The Employees Provident Fund Organisation (EPFO) retirement fund body has started crediting 8.5 percent interest on the accumulated fund of its approximately six crore subscribers at one go from Thursday instead of two tranches as suggested earlier. We also said that our effort will be to have an 8.5 percent interest rate on the EPF for 2019-2020. To provide the same thing, we released a confirmation. We have also started the process of crediting the interest rate to subscribers’ accounts,’ said Labour Minister Santosh Gangwar. 

The decision came after the confirmation of the interest rate by the finance ministry by the highest decision-making body of the Central Board of Trustees (CBT) of EPFO, which it accepted in March of this year. Based on the statutory rate approved for each year, the EPFO credits compound interest on the monthly operating balance. The EPFO had agreed earlier in September this year to divide the 8.5 percent interest into two instalments of 8.15 percent and 0.35 percent at the meeting of its trustees, led by Gangwar. For the financial year 2019-20, the EPFO’s outgo on supplying returns to subscribers at a rate of 8.5 percent is forecast at Rs 60,700 crore. 

The Ministry of Labour has previously said that the 8.50 percent interest rate would represent 8.15 percent of debt revenue and 0.35 percent (capital gain) of the sales of ETFs pursuant to their redemption by 31 December 2020. On Thursday, Gangwar said the redemption was already completed. Initially, the CBT preferred, for the time being, to transfer to the subscribers only the revenue generated from transactions in bonds and other fixed-income securities. Due to the stock market collapse in March, EPFO’s return on equity capital, which is now less than 5 percent of the overall EPF corpus, dropped into the negative zone. Therefore, his attempt to mobilise income from a portion of his nascent equity portfolio for the 0.35% portion of the interest rate offered to subscribers from capital gains, to be achieved, went terribly wrong. 

The Board issued an order for the sale of Rs 6,000 crore ETF investments made in 2016 and aims to earn capital gains of Rs 2,700 crore from this deal by 31 December 2020.