PF savings may fetch you lower returns this financial year
NEWDELHI: The Employees’ Provident Fund Organisation (EPFO), which offered its subscribers a return of 8.65% in the year ended March 31, will likely cut the rate by at least 25 basis points this fiscal, two labour ministry officials said on Wednesday. One basis point is one-hundredth of a percentage point.
Falling returns on debt market instruments like bonds and fixed deposits may prompt EPFO to cut the return on PF savings, the officials cited above said on condition of anonymity. “Debt market investments are fetching 6.5-7.75% now... That’s lower than what we used to earn over the previous two years,” one of the two officials cited above said.
For example, on July 1, 2016, benchmark 10-year G-Secs were fetching 7.419%; on July 3, 2017, it fell to 6.564%. This year, July 1 and 2 fell on the weekend, a holiday for the debt markets.
“When the interest rate in the market goes down by let’s say 100 basis points, it has the potential to impact our payout by up to 70 basis points,” said the second gov- ernment official. “So an 8.65% rate is untenable this year and you may see more than a 25 basis point cut in the rate when it is announced,” the official added.
In the last fiscal year, EPFO earned a return of 13% on equity investments. “Since equity investments are long-term, its value right now is notional,” said Prabhakar Banasure, a member of the finance advisory committee of the EPFO. He agreed that the interest payout this year will likely be lower than last year’s. (Ravindra N Sonavane in Mumbai contributed to this story)