EPFO to pay 8.5% interest for FY20 in two instalments, cites Covid impact

 The Employees’ Provident Fund Organsation (EPFO) decided on Wednesday to credit interest rate to formal sector workers for 2019-20 in a staggered manner, citing the coronavirus pandemic’s impact on its income.

The EPFO will credit 8.15 per cent to its subscribers for 2019-20 for now: significantly lower than 8.5 per cent it had decided upon in March. “The remaining 0.35 per cent will be credited in December after redemption of the EPFO’s equity investments,” said a member of the central board of trustees (CBT) of the EPFO. The EPFO is staring at a shortfall of Rs 2,500 crore in 2019-20 if it gives out the interest rate of 8.5 per cent to its subscribers at one go, said the member requesting anonymity.

The decision was taken in the EPFO’s central board of trustees meeting chaired by labour and employment minister Santosh Kumar Gangwar on Wednesday.

The interest rate of 8.5 per cent was already a seven-year low and the EPFO had credited returns of 8.65 per cent to its subscribers in the previous financial year.

If the EPFO is unable to credit the remaining 0.35% of interest rate in December this year, it will be the lowest returns that the fund's subscribers will get since 1977-78. The EPFO had given an interest rate of 8 per cent in 1977-78.

ALSO READ: Covid-19 selloff in March eats into EPFO equity returns in FY20

The EPFO’s investments in the equity markets yielded negative returns in 2019-20, official data presented in the CBT meeting showed. The investments accrued return of -8.3 per cent for the fiscal, down from 14.7 per cent in the previous fiscal. The unprecedented selloff in March, triggered by the Covid-19 pandemic, has eaten into 2019-20 equity returns for almost all investors.

The EPFO made an investment of Rs 31,501 crore in exchange-traded funds (ETFs) in 2019-20, compared to Rs 27,974 crore invested in the previous fiscal year. The EPFO also got lower returns on its investments in government securities.

The interest rate will be notified by the labour ministry after getting approval from the finance ministry.

The EPFO’s earlier projections had shown that by agreeing to give an interest rate of 8.5 per cent in March, it would have been left with a surplus of around Rs 700 crore.