EPFO's highest decision-making body, the Central Board of Trustees (CBT), had proposed the rate in March.EPFO’s highest decision-making body, the Central Board of Trustees (CBT), had proposed the rate in March.

The Ministry of Finance has approved a return of 8.5% on Employees Provident Fund (EPF) deposits for the period 2020-2021, a move that will affect more than 6.4 crore subscribers. The rate was the same in 2019-20. The Department of Labor will now notify the interest rate before the EPFO ​​begins depositing it to individual accounts. A senior EPFO ​​official said the entire exercise could take a maximum of 30 days to complete from the price notification date.

EPFO’s highest decision-making body, the Central Board of Trustees (CBT), had proposed the rate in March. Keeping a small amount as a surplus, each year EPFO ​​distributes the lion’s share of its income from investments as returns to its subscribers on their accumulated deposits. EPFO does not take money from the treasury to pay interest. On an annual basis, he receives approximately Rs 1.3 crore as a subscription. The accumulated group, now at over Rs 15.5 crore, invests in debt and equity instruments at a ratio of 85:15.

At 8.5%, EPFO ​​will have to pay around Rs 70,000 crore in interest to its subscribers for the period 2020-2021. The Pension Fund Authority will still have Rs 1,000 crore in surplus. The interest rate for 2019-20 was also the same at 8.5%, which, despite its lowest level in seven years, was well above the returns a small saver would get under any other fixed income schemes.

Along with the PPF and the Sukanya Samriddhi Account for Parents of Girls, the EPF is a single fixed-income instrument that is completely tax-exempt under the EEE Scheme.

Of course, thanks to a proposal in the FY22 Budget, with effect from April 1, 2021, interest on employee contribution to the EPF in excess of Rs 2.5 thousand per year will be taxed at the marginal income tax rate; However, barely 1% of EPF subscribers will be affected by the decision.

Since 2015, EPFO ​​has invested in exchange-traded funds, to build an equity portfolio, and this has enabled them to generate higher returns. It hopes to increase returns in 2021-22, pinning hopes on a bull market.

Over the years, EPFO ​​has been able to distribute a higher income to its members, through different economic cycles with minimal credit risk, thanks to its relatively high and compounding interest rates. This is despite the fact that EPFO ​​has consistently taken a conservative approach to investing, placing greater emphasis on safety and maintaining a prime first approach. The risk appetite for EPFO ​​is very low.

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