Now, your retirement funds are also not secured. First time ever after 30 years, the EPFO Fails to Pay Full Interest to its formal sector members. The Rate of Interest Offered is also Seven years low. The formal communication from the the Employees’ Provident Fund Organisation (EPFO) has informed that the credit interest rate to formal sector workers for 2019-20 in a staggered manner, citing the coronavirus pandemic’s impact on its income.
The major reason for the failure was due to negative returns from the stocks market. The EPFO’s investments in the equity markets yielded negative returns in 2019-20. The investments accrued return of -8.3 per cent for the fiscal, down from 14.7 per cent in the previous fiscal. The unprecedented selloff in March, triggered by the Covid-19 pandemic, has eaten into 2019-20 equity returns for almost all investors.
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The EPFO made an investment of Rs 31,501 crore in exchange-traded funds (ETFs) in 2019-20, compared to Rs 27,974 crore invested in the previous fiscal year. The EPFO also got lower returns on its investments in government securities.
The EPFO will credit 8.15 per cent to its subscribers for 2019-20 for now: significantly lower than 8.5 per cent it had decided upon in March. “The remaining 0.35 per cent will be credited in December after redemption of the EPFO’s equity investments,” said a member of the central board of trustees (CBT) of the EPFO. The EPFO is staring at a shortfall of Rs 2,500 crore in 2019-20 if it gives out the interest rate of 8.5 per cent to its subscribers at one go, said the member requesting anonymity.
If the EPFO is unable to credit the remaining 0.35% of interest rate in December this year, it will be the lowest returns that the fund’s subscribers will get since 1977-78. The EPFO had given an interest rate of 8 per cent in 1977-78.
