New Delhi: The government may peg the interest rate on provident fund deposits at nearly 8% for 2022-23, almost at the same level as in the previous fiscal, people familiar with the matter told ET.
They said the earnings of the Employees' Provident Fund Organisation were being worked out but 8% was doable considering higher returns on investments this year.
"Return on EPFO investments this year have been strong with reduced withdrawals on account of Covid-19 pandemic. Even investments in equity are expected to fetch better returns than last year, making a clear case of either retaining the interest rate at 8.1% or bringing it a tad lower to 8%," a senior government official said on the condition of anonymity.
Another official said raising the interest rate beyond 8.1% will widen the difference between PF rates and rates on public provident fund (PPF) and general provident fund (GPF) which stands at 7.1%.
"The government will stick to around 8% to avoid any political backlash as it heads into key state assembly elections this year, followed by general elections next year," the second official added.
The central board of trustees of EPFO is expected to meet later this month or in early March to decide on the interest rate that will be recommended by its Finance Investment and Audit committee based on the earnings for 2022-23.
The retirement fund body had announced the interest rate of 8.1% for 2021-22, which was the lowest in four decades and was significantly lower than 8.5% credited in the preceding year. This was on an estimated income of ₹76,768 crore with ₹450 crore as surplus.
Exchange Traded Fund
The CBT is also expected to take a call on the threshold on redemption of exchange traded funds at its upcoming meeting.
It had in its last meeting in October 2022, proposed fixing a threshold on ETF redemption to ensure minimum returns and better payout to its subscribers. EPFO started investing in equities in 2015-16, starting with 5% in the first year, 10% in the second year and 15% in the subsequent years.
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Regarding the concepts used in the article you provided, let's break them down and discuss each one:
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Provident Fund Deposits: Provident fund deposits refer to the contributions made by employees and employers to a provident fund. These funds are typically set up to provide financial security and retirement benefits to employees. The interest rate on provident fund deposits determines the growth of the fund over time.
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Interest Rate on Provident Fund Deposits: The interest rate on provident fund deposits is the rate at which the funds deposited in the provident fund account earn interest. This interest is usually calculated annually and added to the account balance. The interest rate can vary from year to year and is determined by various factors, including the performance of the fund's investments.
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Employees' Provident Fund Organisation (EPFO): The Employees' Provident Fund Organisation is a statutory body under the Ministry of Labour and Employment in India. It manages the Employees' Provident Fund (EPF), a social security scheme that provides retirement benefits to employees in the organized sector. The EPFO invests the funds in various financial instruments to generate returns.
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Equity Investments: Equity investments refer to investments made in stocks or shares of companies. When the EPFO invests in equity, it means that a portion of the funds is allocated to purchasing stocks of companies listed on the stock market. The returns on equity investments depend on the performance of the stock market and the individual companies' stock prices.
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Public Provident Fund (PPF): The Public Provident Fund is a long-term savings scheme offered by the Indian government. It is open to both employed and self-employed individuals. The PPF offers tax benefits and a fixed interest rate, which is determined by the government and revised periodically.
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General Provident Fund (GPF): The General Provident Fund is a provident fund scheme available to government employees in India. It is similar to the EPF but is specific to government employees. The interest rate on GPF is determined by the government and revised periodically.
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Central Board of Trustees (CBT): The Central Board of Trustees is the apex decision-making body of the EPFO. It consists of representatives from the government, employers, and employees. The CBT is responsible for making decisions related to the EPF, including determining the interest rate on provident fund deposits.
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Finance Investment and Audit Committee: The Finance Investment and Audit Committee is a sub-committee of the CBT. It is responsible for reviewing the EPFO's investments, financial performance, and recommending the interest rate on provident fund deposits based on the earnings for a specific period.
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Redemption of Exchange Traded Funds (ETF): Exchange Traded Funds are investment funds that are traded on stock exchanges, similar to stocks. The EPFO started investing in ETFs in 2015-16. The redemption of ETFs refers to the process of selling or liquidating the ETF units held by the EPFO. The CBT is expected to discuss and decide on the threshold for redemption of ETFs in its upcoming meeting.
I hope this information helps! If you have any more specific questions or need further clarification, feel free to ask.
