PF interest likely to remain same even as equity investment limit might increase

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With the new financial year almost upon us, there have been concerns that the government could modify the interest rate on the Provident Fund. However, according to a report by Indian Express, the rate is likely to remain the same. The current interest rate on PF accounts is 8.65 per cent per annum.

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Savings of over 4.5 crore members of the EPFO could increase if there is no reduction in the interest rate.

The final decision regarding the interest rate is likely to be made next month when the Central Board of Trustees meet. The meeting will also discuss the commission paid to fund managers, with a reduction in this helping the board keep the interest rates same.

There is speculation that the government might sell shares purchased by the EPFO to meet the financial obligation of keeping the interest unchanged. The sale of Rs.2,000 crore worth shares will generate an additional Rs.850 crore, which can be used to keep the rate unchanged.

The board is also looking at the possibility of increasing investments in equities, which will offer greater returns on the investment. Currently the EPFO invests 15 per cent of the corpus in equities, with the new aim being to increase this to 25 per cent.

Investments on equities have given returns of 13.5 per cent compared to the 8.5 per cent returns on debt investments. This extra return could give the EPFO necessary stimulus to keep the interest rate unchanged.

Over Rs.22,000 crore has been invested in equity exchange traded funds during the FY 2018, up from Rs.14,982 crore in FY 2017.

The move could benefit over 4.5 crore members of the EPFO, who will get greater returns on their savings. The interest rate for PF deposits has seen variations over the last two years, having been reduced from 8.8 per cent in FY 15-16 to the current 8.65 per cent.

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