EPFO may lower interest rate on provident fund deposits for this fiscal

The Employees' Provident Fund Organisation (EPFO) is likely to cut interest rate on the grounds that it is directly crediting exchange trade funds (ETF) units into provident fund accounts and lower yields on other investments, particularly bonds.

New Delhi: Retirement fund body Employees' Provident Fund Organisation (EPFO) may lower interest rate on provident fund deposits this fiscal compared to 8.65 percent provided to its 4.5 crore members for 2016-17.

The EPFO is likely to cut interest rate on the grounds that it is directly crediting exchange trade funds (ETF) units into provident fund accounts and lower yields on other investments, particularly bonds, PTI reported quoting a labour ministry official.

Earlier on Thursday, the EPFO approved an accounting policy for valuation and accounting of equity investments which was prepared in consultancy with IIM Bangalore.

The policy will enable the body to credit ETFs units into the provident fund account of the subscribers by this fiscal end. Thus every account holders will see their provident fund balance in the form of cash balance and ETF units.

Though the dividends on ETFs will be credited into the subscribers account but the members would be able to realise the entire rate of return on these equity linked investments at the time of withdrawals.

The subscribers will also have the option to withdraw money while taking advances from their accounts, either by liquidating ETF units or from cash component.

The finance ministry has been nudging the labour ministry to align the EPF rate with its small saving schemes like public provident fund.

In December last year, the EPFO trustees had decided to lower the rate of interest on EPF to 8.65 percent for 2016-17 from 8.8 percent provided for 2015-16.