According to a senior official associated with the labour ministry, the Employees’ Provident Fund Organisation (EPFO) may lower its interest rate for fiscal year 2017-18. The interest rate cut may be on the grounds that the organisation is now planning to credit exchange traded funds (ETF) directly into the accounts of subscribers. Moreover, the recent decline in income from other investments (especially bonds) is said to be another reason for this potential interest rate cut.
For fiscal year 2016-17, the interest rate offered by EPFO was 8.65%. Any change in the interest rate offered will impact the accounts of more than 45 million subscribers. The EPFO is still working on the income projections for the current year. Once the income projections are calculated, the rate of interest for subscribers would be determined for the current fiscal year.
The decision on interest rate offered is taken by the Central Board of Trustees (CBT), which is the highest decision-making body of EPFO. Last December, the trustees lowered the interest rate for EPF accounts from 8.8% (for fiscal year 2015-16) to 8.65%. If the interest rate is lowered for the current fiscal year, it will represent the second consecutive year for which interest rates are lowered for EPF accounts.
A few days ago, the EPFO came up with a new payment system for transferring ETFs to the accounts of subscribers. Under the new payment system, subscribers will have the option of taking both cash or equities in the EPF accounts. They can choose up to 15% of their EPF balance in equities at the time of withdrawal.
The organisation has been investing in equities since 2015. The return on investment from this investment was exceptionally higher (21.87%) than other investments. This return on investment in EPF accounts can be enjoyed by subscribers at the time of withdrawal. The new interest rate for the current fiscal year may also take into account the high returns generated through equities and the transfer of ETFs.
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