Interest rate on PPF may be slashed to 8.50% for this year
MILLIONS of EPFO subscribers may have to take a hit on their earnings from provident fund deposits as the fund manager has decided to seek a cut in interest rate to 8.5 per cent.
The Central Board of Trustees (CBT) of the Employees Provident Fund Organisation (EPFO) will meet on November 23 to consider a reduction in interest rate for fiscal 2017-18. The EPFO paid 8.65 per cent interest last year.
The decision to cut the rate has come at a time when returns of other deposit schemes are also low. A steady rise in food inflation is eroding their savings as well.
A senior government official said provident fund subscribers may have to settle for a lower rate of interest on their retirement corpus this financial year, but the overall return would be the same or more compared to last year’s. This would be possible due to EPFO’s move to utilise its investment in equities.
In its next meeting, the issue of unitisation of EPFO’s investments in equities will also be on the agenda. The retirement body would be investing 15 per cent of its corpus in equities through exchange-traded funds (ETFs) this year. It has been proposed that each subscriber’s share of ETF investments would be credited in his PF account in mutual fund-like units.
Subscribers can redeem the units when he withdraws the PF. The total returns will include the gains on these units depending on the market price of the ETF and the interest on the part of the fund invested in debt. Most of the deposits in the PF accounts are invested in government securities. As interest rates in bank deposits have been falling in the last few quarters, the EPFO has been compelled to lower interest rate.
Meanwhile, PF subscribers can now download the Umang App and opt for claims electronically. They can also review passbooks, claim pension withdrawals and opt for final settlements.