Tuesday, July 22, 2008

EPF MAY ATTRACT MORE INTEREST THIS YEAR

New Delhi: Subscribers to the Employees Provident Fund (EPF) may earn at least a marginally higher payout for 2008-09 than the 8.5% they received in 2006-07 and 2007-08, but only if do not withdraw their funds mid-year.

Interest yields on deposits have moved up to 9-9.5% of late, but the government has continued to borrow from the EPF’s investments at 8.5%. “Fresh investments are likely to attract a higher interest rate. But the actual increase in earnings, which is likely to be only marginally higher, will only be computed at the end of the year before it shows up on subscriber payout,” sources told ET.

Earlier this year, the EPFO formalised the norm for paying last year’s interest rates to subscribers on mid-year withdrawals, in the event that the current year’s payout rate had not yet been approved by the Central Board of Trustees (CBT) and declared by the government.

In earlier years, while this was the normal practice followed — irrespective of whether the interest payout rate finally declared for the fiscal was higher or lower, it was not official practice. In the event, it could be challenged by subscribers who received a lower interest rate for mid-year withdrawals against a higher rate declared later for the running fiscal.

Current estimates of EPFO earnings during 2008-09 are pegged at around Rs 10,552 crore. If it has to fork out even 8.5% interest to its about four crore subscribers this year, the EPFO management estimates a deficit of Rs 139 crore. But the calculations were made with 8.5% yield on investments as the basis. At 8.5% interest yield, the returns are currently nil. In 2007-08, returns on investments made by the sole fund manager SBI only allowed 8.25% interest payout at a deficit of Rs 263.78 crore.

But any increase in yield on investments this year will only be marginal since they will not show up in a good chunk of EPF’s investments. A substantial portion (Rs 53,570 crore) of the EPF corpus of over Rs 1.55 lakh crore (as on March 31, 2007 at the face value excluding the balance lying in the public account) is invested in the Special Deposit Scheme (SDS), and earns an interest yield of only 8%. The interest rate for SDS deposits has stayed frozen since 2003 despite several demands from the EPF’s trustees and political pressure to hike the interest rate.

Source: Mumbai Mirror, The Economic Times

No comments: