Govt planning to keep PF rate unchanged at 8.65%: Reports
What's the story
According to reports, the NDA government is planning to keep the interest rates unchanged on PF deposits at last year's 8.65%. This will be a break from recent EPFO norms, which has been reducing rates from 8.75% in 2013-14 and 2014-15 to 8.65% in 2015-16. Now the government is planning to use EPFO's shares to retain the 8.65% rate.
About
How does the provident fund system work?
Provident Fund (PF) is a retirement benefit applicable to salaried employees, maintained by EPFO (Employees Provident Fund Organization) under the Labor and Employment Ministry. Most employees contribute 12% a month to their PF account. The employer matches the amount. The total sum then compounds at a fixed rate as decided by the EPFO every year; currently it is 8.65% per annum.
Investments
Amid reduced interest income, EPFO planning to sell shares
EPFO invests in equities comprising stocks that reflect composition of indexes like Nifty or Sensex. Its portfolio includes ETFs by SBI MF, UTI MF and central public sector enterprises ETF by Reliance MF. Falling rates of special deposit schemes and AAA-plus bonds has reduced EPFO's income this fiscal. But it's reportedly planning to sell shares worth Rs. 2,000cr for additional earnings of Rs. 850cr.
Rate
New PF rate to be based on share prices
The extra Rs. 850cr would be factored in as total earnings while determining the new PF rate. "The final (income) number would depend on share prices on the day of sale, and there could be a little tweaking (in interest rates)," IE quoted sources as saying. If rates were to be determined according to EPFO's annual interest income, the payout would have been 8.5%.
Quote
'Managers urged to cut commission for maximum benefit to subscribers'
"The Central Board of EPFO Trustees would meet next month to finalize the PF rate and the modalities of the share sale. We will be asking fund managers to cut down their commission to pass on the maximum benefit to the PF subscribers," sources said.
Measures
Government recently extended the scope of PF by 50L
Recently, the Center said it will increase the current mandatory PF coverage cap to Rs. 21,000 monthly. Currently, employees earning up to Rs. 15,000 are mandatorily covered; those earning above this threshold can voluntarily opt for PF. This would add 50L subscribers and take the total number to 4.25cr. The Labor Ministry has proposed extending PF-like schemes to the entire working population of 49cr.