India

EPFO LIKELY TO PAY LESS INTEREST IN 2020-21

on
January 6, 2020

1. The Employees Provident Fund Organization manages a huge corpus of Rs. 12 trillion ( Rs. 12 lakh crs) and has a membership of 6 crore subscribers from the Organized Sector.

2. It currently pays an interest of 8.65% on the outstanding balance of the member employees.

3. It is likely to reduce the interest by 15 to 25 basis points ( 0.15 to 0.25%) for the year 2019-20 due to the following reasons:–

3.1. Lower yields on its investments in debt market instruments including govt securities;
3.2. Lower interest rates on fixed deposit investments;
3.3. The Centre is paying only an interest of 7.9% on the Public Provident Fund deposits ( PPF)

4. In the past one year from January 2019, the yields on the 10 year Central Govt Benchmark bonds have tumbled by 90 basis points.

5. A 100 basis points fall in the interest rates on its investments can lead to a consequential fall of 55 to 70 basis points in EPFO interest rates.

6. The EPFO invests 85% of its funds in debt market instruments.

6.1. It is allowed to invest 15% of its funds in equities through exchange traded funds.
6.2. Its problems are compounded in this as it is unable to recover Rs. 1300 crs of investments in the bankrupt IL& FS NBFC & in Dewan Housing Finance Corporation Ltd, both the legacy of the UPA ‘s cronie lending practices.

7. The reduction in FY 21 interest rates is likely to be announced by the end of January 2020 by the Central Board of Trustees ( CBT) of EPFO , chaired by the Union Minster for Labor & Employment.

Ramdas Iyer
06.01.2020
Independent Analyst

Reference Link : https://countryeconomy.com/bonds/india

Reference Link : https://www.livemint.com/money/personal-finance/epf-likely-to-fetch-lower-returns-11578246757092.html

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