EPF interest rate hiked: Here's how much your provident fund savings will go up

The past few years had seen the interest rate on Employees' Provident Fund (EPF) steadily dip, hitting a five-year low of 8.55% in 2017-18.

But, with general elections looming, the retirement fund body yesterday finally had some good news for its over 6 crore subscribers: The interest rate has been hiked by 10 basis points to 8.65% for 2018-19. The move will be notified by the Labour Ministry once it gets the Finance Ministry's nod.

What does this mean for your money?

Simply put, if you have Rs 5 lakh in your EPF account, you will earn Rs 43,250 as interest in the current fiscal, Rs 500 more than in the last financial year. Similarly, if an EPF balance of Rs 10 lakh will now earn Rs 1,000 more.

For instance, a 25-year-old new employee earning a monthly basic salary (plus dearness allowance) of Rs 10,000, who contributes 12% to EPF, can expect his EMF fund to grow Rs 34,13,406 on retiring at the age of 58.

Also Read: EPF interest rate hiked to 8.65%; move to benefit 6 crore provident fund subscribers

"Although EPFO [Employees' Provident Fund Organisation] is investing 15% of the incremental corpus in equities, methodology for this has not been implemented. This means that the hike in interest rate is applicable on the full corpus, including on the amount invested in equity," Amit Gopal, India business leader-investments of investment advisory Mercer, told Mint.

The EPFO has reportedly been working on a software that would help show retirement savings in cash and ETFs components separately. An ETF is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. So when things are up and running, all subscribers will have two accounts - the fixed income corpus will earn the annual interest rate while the ETF units will earn markets-linked returns.

The next big leap from there would be to give members an option to increase or decrease investments in stocks as per individual risk appetite. In fact, the EPFO's apex decision making body, the Central Board of Trustees, has already suggested exploring such possibilities. Hence, more good things could be in store for subscribers in the year ahead.

What are the benefits of having a PF account?

Apart from the fact that an employee's contribution towards an EPF account is eligible for tax exemption under Section 80C, the interest earned is also exempt from income tax. Moreover, while employers and employees both contribute 12% of wages in EPF, 8.33% of the employer's share is diverted towards the Employees' Pension Scheme (EPS). According to the retirement fund body, 10 years of contributory membership ensures lifelong pension under Employees' Pension Scheme 1995.

It also makes for a handy kitty to tap into for major life events like marriage, child's education, home loan repayment and more. While the EPFO strongly advises against treating PF money as a bank account - after all, the social security benefits accrue only when continuity is maintained - the body allows its members to make partial withdrawals after 5-10 years of service for meeting such specific needs. Last year, the retirement fund body also gave its subscribers an option to withdraw up to 75% of their total PF balance after one month of unemployment.

Last but not the least, under the Employees Deposit Linked Insurance (EDLI) Scheme, which is an insurance cover provided by the EPFO, a subscriber's registered nominee will receive a lump-sum payment in the event of the death of the person insured during the period of the service. Last February, the retirement fund body had enhanced the minimum assurance limit under this scheme to Rs 2.5 lakh, up from Rs 1.5 lakh previously. The maximum assurance benefit is capped at Rs 6 lakh.

How to check your EPF balance?

One of the most significant changes introduced by the EPFO in recent times is the online activation and management of your Universal Account Number (UAN). UAN is a 12-digit number, which remains the same throughout your employment, no matter how many employers you change.

Once your employer has activated your UAN, you can use the EPFO portal to check your balance or you can download the "m-sewa app of EPFO" from the Google Play Store. You can also give a missed call to 011-22901406 from your registered mobile number or send an SMS to mobile number 7738299899. The message you have to type out is EPFOHO UAN ENG, if English is your preferred language. If you want to receive the message updates in Hindi, type in EPFOHO UAN HIN.

Note that your UAN number has to be integrated with your KYC details, say, Aadhar or PAN or bank account details, for the above.

The online facility provided by the EPFO to manage your UAN also allows you to make claims and place transfer requests.

Read More: 5 reasons why provident fund is so important to the salaried class!

EPFO may keep PF interest rate unchanged at 8.55% for FY19