EPFO may lower interest rate this FY

The Employees' Provident Fund Organisation (EPFO) may lower interest rate on provident fund deposits this fiscal, compared with 8.65% provided to its 4.5 crore members for 2016-17, a Labour Ministry official said.

The EPFO is likely to cut interest rates on the grounds that it is directly crediting exchange trade fund (ETF) units into provident fund accounts and lower yields on other investments, particularly bonds.

"The EPFO may cut rate of return on provident fund deposits for 2017-18 due to lower income on bonds and its plan to credit ETF investments directly into the account of subscribers," the senior official said.

However, the official said the EPFO is still to work out the income projection for the current fiscal, which would become the basis for crediting rate of interest in subscribers' account for this fiscal.

Earlier on Thursday, the EPFO approved an accounting policy for valuation and accounting of equity investments which was prepared in consultancy with IIM Bangalore.

The policy will enable the body to credit ETF units into the provident fund account of the subscribers by this fiscal-end. Thus, all account holders will see their provident fund balance in the form of cash balance and ETF units.

Though the dividends on ETFs will be credited into the subscribers' account, but the members would be able to realise the entire rate of return on these equity-linked investments at the time of withdrawals. The subscribers will also have the option to withdraw money while taking advances from their accounts, either by liquidating ETF units or from the cash component.

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