EPFO cuts interest rate, to credit 8.15%

The Employees’ Provident Fund Organsation (EPFO) will credit only 8.15% interest rate to its subscribers against 8.50% decided for 2019-20. The remaining 0.35% will be credited by December after redemption of EPFO’s equity investment.

One reason behind such a move is that the retirement fund body has earned negative returns on its investment in equities and government securities in the financial year 2020.

The EPFO will stare at a shortfall of Rs 2,500 crore in 2019-20 if it gives out the interest rate of 8.50% to its subscribers at one go, according to sources.

The EPFO had earlier planned to liquidate some of its investment in exchange-traded funds to meet the deficit but could not do so due to adverse market conditions amid lockdown induced by Covid-19.

The EPFO’s apex decision-making body, Central Board of Trustees (CBT), will meet again in December and take a call on crediting the remaining 0.35% interest into subscribers’ accounts.

It had invested over Rs 31,000 crore in exchange-traded funds in 2019-20, compared with an investment of nearly Rs 28,000 crore in 2018-20.

The interest rate will be notified by the labour ministry once it gets the finance ministry’s approval, which is only a formality.

Besides, the CBT also decided to hike the maximum sum assured payable under Employees’ Deposit Linked Insurance Scheme 1976 to Rs 7 lakh from existing Rs 6 lakh.

“The Central Board accorded approval for amendment of paragraph 22(3) of Employees’ Deposit Linked Insurance Scheme (EDLI), 1976 to enhance the maximum assurance benefit to Rs 7 lakh,” the statement said.

This amendment will provide additional succour to families and dependents of members of the scheme in case of their unfortunate death while in service. CBT was also informed that the actuarial valuation of EDLI Fund has allowed for continuation of minimum assurance benefit of Rs 2.5 lakh beyond February 14, 2020.