Interest rate of 8.5% returns on PF deposits for FY21 approved by Finance Ministry

The finance ministry has given the green signal for an 8.5% interest rate on provident fund deposit for 2020-21, to benefit over 60 million individuals.

October 29, 2021

Step taken ahead of Diwali, to boost consumer sentiment.

The move is also expected to enable EPFO to have a surplus of US$ 40 million.

The current rate of interest returns was based on other government schemes which have much lower interest rates.

EPFO invests 15% of its annual accruals in equity and rest in debt instruments every year.

The Employees Provident Fund Organisation (EPFO) has received the approval of the finance ministry foran 8.5 % rate of interest on provident fund deposits for 2020-21, to be credited in the accounts of more than 60 million beneficiaries. Ahead of the Diwali festive season, this step is anticipated to boost consumer sentiment. In the previous financial year the EPFO enjoyed a surplus of US$ 133.5 million; this year, the move will enable EPFO to have a surplus of US$ 40 million.

The interest rate of 8.5% was approved earlier this year, in March, by the central board of trustees of EPFO, headed by the labour minister and the process was accelerated at the request of top officials from the labour ministry. Since the past few years, the high rates of interest set by EPFO with every passing year, when the rate of interest for other government schemes such as the public provident fund or small saving schemes was much lower, has been questioned by the finance ministry. An income of around US$ 9.38 billion had been expected by EPFO, which included US$ 533.9 million from the sale of a portion of its equity investments and US$ 8.67 billion from debt. The 8.5% interest rate was recommended based on the above parameters by the central board of trustees. Despite the large Covid withdrawals from the retirement fund kitty, since the announcement of the scheme last year, EPFO had kept the interest rate on PF deposits for 2020-21, the same as that of 2019-20.

With an active subscriber base of more than 60 million, EPFO invests 15% of its annual accruals in equity and rest in debt instruments every year. The COVID-19 pandemic caused millions of salaried class workers to lose jobs or work for reduced wages, leading them to withdraw from their retirement fund kitty under the Covid withdrawal scheme.