The Employees' Provident Fund Oragnisation (EPFO) might reduce its interest rate leading to lower returns for millions of salaried people. The EPFO might reduce the interest rate to its subscribers by 15-25 basis points for this financial year.
Millions of salaried people are required to mandatorily invest in the EPFO. They would earn lower returns for the financial year ending March 31, 2020. EPFO was offering subscribers an interest of 8.65 per cent in 2018-19.
According to a report in Livemint, the decision, two government officials said, comes amid economic slowdown, lower yields for debt market instruments and lower interest rates on similar products including public provident fund and government provident fund.
The report said that the announcement on annual interest rate is likely to come by the end of the month.
The EPF payout is impacted by 55 to 70 basis points in case interest rates in the market falls a 100 basis point. It is therefore likely that the EPFO would find it difficult to offer 8.65 per cent interest this financial year. The EPFO invests 85 per cent of its annual accruals in debt market and 15 per cent in equities through exchange-traded funds, as mentioned in the report. "Thus, a 15-25 basis point cut in EPF interest rate this fiscal should not come as a surprise," said an official to the daily.
The EPFO was left with a surplus of Rs 151 crore in 2018-19 after an 8.65 per cent payout - much less than the surplus of Rs 586 crore in 2017-18.