EPFO to pay 8.5% interest on PF deposits for 2012-13

NEW DELHI: The retirement savings accumulated in your employees' provident fund (EPF) account would fetch a return of 8.5% in 2012-13, labour and employment minister Mallikarjun Kharge announced on Monday at a meeting of the board of trustees of the EPF organisation. 

The trustees also agreed to free up the moribund norms followed for EPF investments, though stock market investments continued to get a thumbs-down. 

The decision to pay 8.5% offers minor relief to Rs 8.15 crore formal sector employees, whose EPF savings got only 8.25% in 2011-12. But it also marks the second year in a row that EPF returns are less attractive than small savings instruments like the public provident fund (PPF) and National Savings Certificates. 

EPFO had proposed to pay 8.5% as a 'feasible' return this year based on its income and liability estimates. By contrast, PPF savings have been earning 8.8%, while 5-year and 10-year national savings certificates offer a return of 8.6% and 8.9%, respectively, since April 1, 2012. 

An audit of the EPFO's accounts for the previous year had revealed that the EPF scheme began 2012-13 with a negative balance of Rs 1336 crore because it ended up paying its members more than it had earned in 2011-12. 

If it had started the year on a clean slate, the EPF rate for 2012-13 could have been 9%. The audit has warned that this negative balance could grow further and lower the EPF rate for 2013-14 as well. 

To boost the EPF scheme's income, the board gave a green signal to invest in bonds of private sector firms with a net worth of at least Rs 3,000 crore and a five-year track record of paying 15% or more dividend. EPFO's fund managers have been urging the board's finance committee to route a small portion of its corpus to Dalal Street and liberalise some of its stringent conditions. 

EPFO currently follows an investment pattern notified by the finance ministry in 2003. Though the finance ministry allowed provident funds to invest upto 5% in equities in a fresh pattern applicable since 2005, the PF board had rejected the revised norms in entirety citing its discomfort with equity investments.

Source :- Economic Times - 26th Feb, 2013

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