The Central Board of Trustees, EPF, even in the current scenario where interest rates are falling, went on to recommend an 8.5 percent interest rate for FY21. This decision was arrived at the 228th meeting held in Srinagar, Jammu, and Kashmir under the chairmanship of Santosh Kumar Gangwar who is the Union Minister of State for Labor and Employment. This decision came in a situation where it was anticipated that the impact of the pandemic as seen on other interest rates would be seen on the PF interest rate as well.
EPFO has been generating interests equal to or above 8.5 percent consistently since FY14. The compounding of high-interest rates makes EPF very profitable for the subscribers. This is even though EPFO is known for its conservative approach towards investment and has always focused more on the safety and preservation of Principal. Since it is involved in investing in the common man’s retirement is has a low-risk appetite. Even with this minimal credit risk, over the years, EPFO has been able to distribute higher income to its subscribers. When we compare the high credit profile of EPFO investments with other similar investments available for subscription to the investors, EPFO provides higher interest rates. From FY16, EPFO, through the exchange-traded funds which are based on NSE 50 and BSE 50 indices, started investing in equity. In the beginning, the equity investment was 5 percent. It then went up to 15 percent of the incremental portfolio.
EPFO had decided to liquidate investment inequities for FY21. The interest rates declared are due to combined income from interest that was received from the debt investments made coupled with the income from equity investments made. This has made sure that that EPFO can provide higher returns to their investors while at the same time they have sufficient healthy surplus that can act as a cushion to continue providing higher returns in the future. Hence there is no over-drawl due to the distribution of income at this rate. Since it has an assured fixed return that is announced every year by CBT, it is an attractive option for investors.