After small savings, EPF set to fetch less returns

The pension fund savings of salaried class employees is set to get less return from this year as the Employees' Provident Fund is considering lowering interest rates by about 25 basis points.

The provident fund savings, which get 8.65% at present, may fetch only about 8.40%. The Finance, Investment and Audit Committee of the provident is likely to take a decision to this effect when it meets next month.

Besides, the government is also thinking on increasing EPF investment limit in stock market from the current 15%. Both the decisions have always been opposed by employees trade unions for they lend uncertainty to the retirement kitty.

The basic idea behind lowering the interest rate is to align EPF return with other similar saving products, a government official told DH on condition of anonymity.

The government had in June this year cut the interest rates on Public Provident Fund and General Provident Fund by 10 basis points. These two funds fetch an interest rate of 7.8% while the EPF is 8.65%, which is 85 basis points more than PPF and GPF.

EPF is the largest non-government provident fund in the country. The fund has not cut rates in this financial year. It had only reduced interest rates in 2016-17 by 15 basis points. This is in contrast to two interest rate cuts on GPF and PPF in the ongoing year.

The total EPF balance includes the employee's contribution and that of the employer along with the accrued interest. This can be obtained as final at the time of retirement or at attainment of 55 years of age. But the kitty also offers partial withdrawals at the time of marriage, medical emergency, service of any loan or for education or other purposes.

It is for this reason that EPFO, the organisation that manages EPF, was always against the fund being allowed to trade in the stock market.

However, in 2015, the government allowed 5% of the EPFO fund to investment in assets like stocks, commodities and bonds through Exchange Trade Funds (ETF).

This was subsequently increased to 15%. Now, the buzz is that the Finance and Investment Audit Committee in its October meeting may consider a proposal to increase it by further 10% to make it 25%.

In the past, trade unions including Bharatiya Mazdoor Sangh, a wing of RSS, have opposed the decision to enhance market exposure to the pension fund. After the investment committee takes the decision, it will be sent to the finance ministry for its approval. If the finance ministry approves, the Central Board of Trustees will take a final decision.