Salaried class to benefit as EPF interest rate may increase

The past few years have seen the interest rate on Employees' Provident Fund (EPF) steadily dip. In fact, it hit a five-year low of 8.55% in 2017-18. But, with general elections looming, the government may finally have some good news in store for the over six crore subscribers of the Employees' Provident Fund Organisation (EPFO).

Though the retirement fund body's annual internal review is yet to conclude, three officials with knowledge of the development told Mint that there was a good chance the EPF interest rate would be hiked up, bringing cheer to the salaried class.

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" We are exploring whether we can offer interest rate of more than 8.55% this financial year. Reduction of the rate is a complete no at this point in time, though the final calculation and accounts audits are still on," Prabhakar Banasure, a member of EPFO's central board of trustees, told the daily.

Another official said that EPFO's equity investments have a notional return of around 12% and might be used if required. The retirement body had boasted a surplus of Rs 600 crore last year, when it had announced the 8.55% rate. Significantly, the EPFO has invested around Rs 50,000 crore in the stock market through exchange-traded funds.

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At the very least, a further drop in the interest rate seems to have been ruled out. "2018 has been a relatively low-yielding year for debt investments, but the EPFO is unlikely to revise the interest rate downward for 2018-19 from what it paid last fiscal," said a source. "It's an important year and we are making the last round of calculations before announcing the EPF rate in late January."

However, even then, it will be one of the most rewarding savings schemes available to the salaried class. The daily added that in 2018, the average interest rate of the Public Provident Fund (PPF) and the National Savings Certificate (NSC) was 7.7% while the leading ultra short-term debt funds - which invest in securities with maturities between three and six months - returned an average of 7.78%.

Moreover, the real rates of interest accruing to the salaried classes have seen an uptick in recent times courtesy the falling inflation.

A source told the daily that the EPF interest rate for 2018-19 would be in line with what the government had announced in recent times - a nearly 50% hike in incentives for front-line health workers, including those working at Integrated Child Development Scheme centres (anganwadis) and the decision to make the National Pension System (NPS) withdrawals tax-free.

Though the EPF interest rate is typically declared in December, the slight delay this time round was reportedly because the account audit was still underway. The final decision is likely to be announced ahead of the vote on account, expected on February 1.