EPFO likely to reduce the interest rate by end-January 2020

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The Employees’ Provident Fund Organisation (EPFO) may reduce the interest rate to its subscribers by 15-25 basis points, leading to lower returns for the financial year ending March 31, 2020.

This comes in the wake of EPFO offering its subscribers an interest of 8.65% in 2018-19 fiscal after taking seven months to convince the finance ministry of the viability of its proposal.

The EPFO had offered its subscribers an interest of 8.65 percent in 2018-19. The decision to lower the interest rate comes against the backdrop of the economic downturn, lower yields for debt market instruments including government securities and fixed products and lower interest rates on similar products such as public provident fund and government provident fund that are likely to be factored in when EPFO announces its 2019-20 rate of interest.

The EPF payout is impacted by 55 to 70 basis points in case interest rates in the market falls a 100 basis point. It is therefore likely that the EPFO would find it difficult to offer 8.65 percent interest this financial year. The EPFO invests 85 percent of its annual accruals in debt market and 15 percent in equities through exchange-traded funds, as mentioned in the report. “Thus, a 15-25 basis point cut in EPF interest rate this fiscal should not come as a surprise,” said an official to the daily.

According to Livemint report; a government official said “The economic downturn was visible this year. The falling returns on debt instruments will force the EPFO to tinker its 2019-20 payout downwards. The long-term fixed deposits and some bond yields have gone down by between 50 and 90 basis points in the last one year and you cannot ignore those indicators.”

The EPFO is expected to announce the annual rate of interest by the end of January 2020.

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