The interest rate on the employees’ provident fund has reportedly been raised to 8.65 per cent by the Employees’ Provident Fund Organisation (EPFO). Earlier it was 8.55 per cent.
The decision was apparently made by the Central Board of Trustees (CBT) led by the Labour Minister. The hike is yet to be approved by the Finance Ministry, after which the same will be credited to the accounts of the subscribers.
The decision pertaining to rate is taken on the basis of the surplus generated through the investments made by the EPFO. Recently, the EPFO had begun the practice of investing in exchange-traded funds (ETFs) in August 2016. Currently, it invests 15 per cent of its Rs 1.5 crore investible deposits annually in ETFs and has invested around Rs 50,000 crore in ETFs so far.
The proposed increment of .10 per cent will benefit more than six crore subscribers.
For the salaried staff in the private sector, EPF is mandatory and therefore, a means to ensure retirement savings. There is another voluntary option available in the form of the National Pension System (NPS), wherein the employees contribute 10-12 per cent of their salary towards EPF.
Premature withdrawal is possible in case of EPF for medical emergencies, marriages or educational purposes. The EPFO invests the funds primarily in government securities and some of it in equities through ETFs as mentioned earlier.
The employees’ contributions are tax-free if the fund is withdrawn only after five years without a break.