The Employees Provident Fund Organization (EPFO) decided on Wednesday to credit the interest rate to formal sector workers for 2019-20 in a phased manner, citing the impact of the coronavirus pandemic on their income.
The EPFO will credit 8.15 percent to its subscribers for 2019-20 for now – significantly less than the 8.5 percent it had decided in March. “The remaining 0.35 percent will be credited in December after redemption of EPFO’s equity investments,” said a member of EPFO’s central board of trustees (CBT). The EPFO faces a shortfall of Rs 2,500 crore in 2019-20 if it delivers the 8.5 percent interest rate to its subscribers all at once, said the member who requested anonymity.
The decision was made at the EPFO central management council meeting chaired by Labor and Employment Minister Santosh Kumar Gangwar on Wednesday.
The 8.5 percent interest rate was already a seven-year low, and the EPFO had credited 8.65 percent returns to its underwriters in the previous financial year.
If the EPFO cannot credit the remaining 0.35% of the interest rate in December of this year, it will be the lowest return that the fund’s subscribers will obtain since 1977-78. The EPFO had awarded an interest rate of 8 percent in 1977-78.
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EPFO’s investments in the equity markets returned negative returns in 2019-20, official data presented at the CBT meeting showed. Investments accrued a return of -8.3% for the fiscal, compared to 14.7% for the previous one. The unprecedented sell-off in March, triggered by the Covid-19 pandemic, has depleted 2019-20 stock returns for nearly all investors.
The EPFO made an investment of Rs 31,501 crore in exchange-traded funds (ETFs) in 2019-20, compared to Rs 27,974 crore invested in the previous fiscal year. EPFO also obtained lower returns on its investments in government securities.
The interest rate will be notified by the Ministry of Labor after obtaining the approval of the Ministry of Finance.
Previous EPFO projections had shown that by agreeing to grant an 8.5 percent interest rate in March, it would have been left with a surplus of around Rs 700 million.
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