EPFO’s interest rate declaration shines light on a fundamental problem
Reeling under pressure from huge withdrawals, declining interest rate and underperformance of its equity portfolio, the Employees’ Provident Fund Organization split the interest rate payment of 8.5% for FY20. On 9 September, EPFO decided to first credit only 8.15% interest for FY20 into the subscribers’ accounts and the remainder 0.35% rate of interest by December, subject to redemption of the units. EPFO in 2015 put the cart before the horse when it decided to put 5%, and subsequently 15%, of the incremental corpus in the stock market through exchange-traded funds, but at the time, it didn’t devise a methodology by which to unitize the equity corpus. When EPFO declared an interest rate of 8.8% for FY16, it didn’t factor in the equity portion in the absence of a methodology and the tiny proportion, never mind the fact that the equity portfolio had indeed given negative returns.
Centre approves 8.1% interest rate on employees' provident fund deposit for 2021-22
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