Centre working to keep PF rates unchanged
Going by the established norm of announcing returns based on its annual interest income, the payout would have been 8.5 percent.
WITH AN eye on the possibility of early general elections, the NDA government is working on keeping the interest rate on provident fund deposits unchanged at last year’s level of 8.65 per cent by dipping into the shares held by the Employees Provident Fund Organisation (EPFO) for the extra 0.15 percent payout.
Going by the established norm of announcing returns based on its annual interest income, the payout would have been 8.5 percent. But the government plans to sell some shares that the EPFO has bought since August 2015 to shore up the return at 8.65 percent.
Sources said the EPFO would sell shares worth Rs 2,000 crore to book an estimated extra income of Rs 850 crore due to the buoyancy in share prices on the back of a spurt in the bourses. This additional gain of Rs 850 crore would be ploughed in as total earnings to determine the PF rate.
“The Central Board of Trustees of EPFO would be meeting next month to finalise the PF rate and the modalities of the share sale. We will be asking the fund managers to cut down their commission to pass on the maximum benefit to the PF subscribers,” said sources.
“However, the final (income) number would depend on the share prices on the day of the sale and there could be a little tweaking (in the interest rate). We are aiming to keep the rate unchanged from last year,” said sources.
The old-age funds body provided 8.65 per cent for fiscal year 2016-17, down from 8.8 per cent in 2015-16 and 8.75 per cent in 2013-14 and 2014-15.
EPFO invests in equities via exchange-traded funds comprising a slew of stocks that reflect the composition of an index such as the Nifty or the Sensex. It has invested in ETFs run by SBI Mutual Fund, UTI Mutual Fund and the central public sector enterprises ETF run by Reliance Mutual Fund.
Sources said the Prime Minister’s Office had earlier asked the Labour Ministry to examine the pros and cons of reducing the fiscal year 2017-18 interest rate to 8.5 percent, considering there are around 6 crore subscribers to the savings scheme.
Falling interest rates in special deposit schemes and AAA-plus bonds issued by corporates and the government has reduced the interest earnings of the EPFO this fiscal. The Finance Ministry is also keen that the PF rate be aligned with other small saving schemes like the PPF of the government.
The EPFO is allowed to sell shares following its Central Board of Trustees’ decision last May empowering the funds body to exit the market when its fund managers felt that they need to take investments off the stock market.