March 6, 2020: The Employees' Provident Fund Organisation (EPFO) has proposed to slash the interest rate on provident fund deposit to 8.50 per cent from 8.65 per cent for the year 2019-20. Labour Minister Santosh Gangwar announced the development on Thursday after meeting the members of EPFO’s central board of trustees (CBT).
This is the lowest EPF rate in the last seven years that will impact its six crore active subscribers. The government cut the rate to 5-year low in the year 2012-13 to 8.50 per cent, and 8.25 per cent in the year 2011-2012. The proposal will now require the finance ministry's concurrence.
Here’s the table to highlight EPFO’s FD rates, from the year 2011-12 to 2019-20.
Naveen Kukreja, CEO of Paisabazaar, said, “The Labour Ministry’s proposal to reduce EPF rates from 8.65 per cent to 8.50 per cent p.a. for FY20 is in line with the current ‘falling interest rate regime’. As EPFO primarily invests its corpus in debt markets (including government securities), equity markets and fixed deposits, the falling returns from these segments have negatively hit EPFO’s earnings as well.”
He suggests, “Retirement planning is a long-term financial goal spanning over decades and equity as an asset class beats other asset classes, especially fixed income class, by a wide margin over the long run. Hence, EPF subscribers should invest a sizable proportion of their overall retirement portfolio in equity mutual funds. A well-diversified portfolio will reduce the impact of falling returns from EPF, PPF, etc and thereby, help build an adequate corpus for their post–retirement life.”