Employees find a reason to celebrate as the government is said to be working on keeping the interest rate on provident fund deposits unchanged at last year’s level of 8.65 percent by dipping into the shares held by the Employees Provident Fund Organisation (EPFO) for the extra 0.15 percent payout.
As per report, the government is planning to sell some shares that the EPFO has bought since August 2015 to shore up the return at 8.65 percent. The EPFO is likely to sell shares worth Rs 2,000 crore to book an estimated extra income of Rs 850 crore. This additional gain of Rs 850 crore would be ploughed in as total earnings to determine the PF rate.
The report further suggests that the Central Board of Trustees of EPFO would be meeting next month to finalize the PF rate and the modalities of the share sale. The fund managers are to be asked to cut down their commission to pass on the maximum benefit to the PF subscribers. Following the Central Board of Trustees’ decision last May for empowering the fund's body to exit the market when its fund managers felt that they need to take investments off the stock market, the EPFO is allowed to sell shares.
It has been observed that 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. Interestingly, the Finance Ministry is also keen that the PF rate is aligned with other small saving schemes like the PPF of the government.
While the government aims to keep the rate unchanged, 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). The old-age fund's body provided 8.65 percent for the fiscal year 2016-17, down from 8.8 percent in 2015-16 and 8.75 percent in 2013-14 and 2014-15.