EPFO marginally raises interest rate on PF deposits to 8.15% for FY23

The Central Board of Trustees (CBT) of the Employees’ Provident Fund Organisation (EPFO) on Tuesday decided to raise the interest rate on the provident fund deposits marginally to 8.15 per cent for FY23 from a four-decade low of 8.1 per cent in the previous financial year.

The interest rate would be officially notified in the government gazette after getting the customary approval from the Finance Ministry, following which EPFO would credit the rate of interest into its subscribers’ accounts.

“The objective of EPF investments has always been to increase the wealth, but since EPFO is the custodian of people’s wealth, the investment is done rather conservatively. The reserve fund has increased from last year. Hence, it was decided to raise the interest rate, though marginally,” said Bhupendra Yadav, Union Minister for Labour & Employment, who chaired the meeting of the apex decision making body of the EPFO.

The social security organisation is expected to distribute Rs 90,000 crore this year to its members’ accounts, on a total principal amount of Rs 11 trillion. The expected surplus this year is likely to be about Rs 660 crore.

“Over the years, EPFO has been able to distribute higher income to its members, through various economic cycles with minimal credit risk. Considering the credit profile of the EPFO investment, the interest rate is higher than other comparable investment avenues available for subscribers. The recommended rate of interest safeguards the surplus as well as guarantees increased income to members,” said the labour ministry in a statement.

However, Dilip Bhattacharya, member, CBT, said that the marginal increase in the interest rate comes in the wake of higher retail inflation in the current fiscal, which won’t be sufficient enough to motivate people to save as in previous years, the interest rate used to be around 8.5 per cent or higher despite moderate inflation.

The EPFO had paid a historically low interest rate to subscribers in FY22. The PF interest rate has been at least 8.5 per cent in recent years, hitting 8.8 per cent in FY16.

“Though the number of depositors have risen by 15 per cent over last year, the interest rate has been raised only marginally to 8.15 per cent. The body would have had a surplus of close to Rs 110 crore had it provided 8.20 per cent interest rate, and a deficit of Rs 440 crore had it provided 8.25 per cent rate of interest,” said another member of the CBT requesting anonymity.

The interest rate declared by EPFO will also apply to Voluntary Provident Fund (VPF) deposits. Employees whose EPF accounts are with an exempted trust will also receive 8.15 per cent interest rate on their EPF deposits in FY23.

The interest rates are fixed by the EPFO based on the earnings of the retirement fund body on the deposits it has and the investment it has made in various instruments.

“It was also decided to increase the Exchange Traded Funds (ETF) investments by EPFO to 15 per cent from 10 per cent of the corpus currently as the income returns from the ETF has increased to Rs 10,500 crore, which is significantly higher than Rs 4,800 crore in the previous year,” said Raghunathan KE, member, CBT.  

Besides, it was also agreed in the meeting to resolve issues surrounding the ongoing higher pension matter and offer clarifications on concerns about the joint option form to make it more attractive for potential subscribers.