Employees’ Provident Fund Organisation (EPFO) is going to reduce the interest rate offered to its subscribers by 15-25 basis points for this fiscal, two government officials said on condition of anonymity. A basis point is one-hundredth of a percentage point.
This step will be taken for the last offering its subscribers an interest of 8.65% in the 2018-19 fiscal after taking seven months to convince the finance ministry of the viability of its proposal.
That decision also proved out to be wrong due to economic downturn, lower yields for debt market instruments, including government securities, and fixed deposits 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, said one of the two officials cited earlier
By the end of the January the retirement fund manager will announce the annual rate of interest after a series of meetings of its investment officials, executive committee members and the central board of trustees (CBT), the other 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 first official said. “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 10-year benchmark government securities or G-Secs went down between 85 and 90 basis points between January 2019 and January 2020″ and that would be a drag on EPFO’s earnings, said the second official.