EPF rate to remain at 12% during current fiscal - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

EPF rate to remain at 12% during current fiscal

Apr 26, 2000

The Central Board of Trustees of the Employee’s Provident Fund (EPF) has decided to retain the rate of 12% interest for the current financial year. The board on Tuesday meeting has also approved modifications in the pattern of investment as recommended by its finance and investment committees. The modification in pattern of investment approved by the board include:

  • Reduction of criterion of AAA for public sector undertakings (PSU) and public sector financial institutions (PSFIs) to ’AA+ if rated by one rating agency and AA if rated by two agencies.
  • For public sector banks, rating requirement has been reduced from “AA+” to AA only.

With the earlier decision by the Government to reduce interest rates on Public Provident Fund (PPF) and General Provident Fund (GPF) (brought down to 11% from 12%) it was being anticipated that there would be a reduction in returns offered by the Employee Provident Fund (EPF).

Even the recommendation by the finance and investment committees was for considering 11.5% per annum on monthly balance instead of 12% currently, keeping in view the yield and current interest rate scenario.

But the government has decided to continue with the 12% rate on EPF in the current fiscal. This means that the government will be forced to fully utilise the reserve to meet the interest liability that would be arising because of higher interest rate.

The earlier government announcement of a reduction in rates on Special Deposit Scheme (SDS) to 11% from 12% would add further problem for the EPF fund to generate 12% on the deposits in the fund. This is so because 81% of EPF holdings are deposited in the SDS, the rate of which has been reduced by 1% to 11%. The current estimated deposit in the fund is Rs 2.31 bn.

The table below shows the maturity value of an annuity investment of Rs 60,000 per annum for 15 years at 12% and 11% if the government had reduced the interest rate on EPF. The comparison clearly indicates that an investor's maturity value would have decreased by Rs 213,826 or 9%.

Investment
(Rs)
Rate
(%)
Years Maturity
value (Rs)
60,000 12.0% 15 2,506,196
60,000 11.0% 15 2,292,370
Decreased
maturity value
- - 213,826

The Government decision appears to be influenced by the pressure from labor unions that were totally against the reduction in the EPF rate. Taking into consideration the number of options available in developed countries for investing purpose, government decision seems to be justified, as there is not many options in India for such investment. Whatever it be, it’s good news for the employees as their deposits will continue to fetch a higher return as compared to the other options available in the market, that too tax free.

Equitymaster requests your view! Post a comment on "EPF rate to remain at 12% during current fiscal". Click here!

  

More Views on News

SHARE INDIA SECURITIES 2020-21 Annual Report Analysis (Annual Result Update)

Nov 18, 2021 | Updated on Nov 18, 2021

Here's an analysis of the annual report of SHARE INDIA SECURITIES for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of SHARE INDIA SECURITIES. Also includes updates on the valuation of SHARE INDIA SECURITIES.

PILANI INVESTMENT & IND. 2020-21 Annual Report Analysis (Annual Result Update)

Nov 10, 2021 | Updated on Nov 10, 2021

Here's an analysis of the annual report of PILANI INVESTMENT & IND. for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of PILANI INVESTMENT & IND.. Also includes updates on the valuation of PILANI INVESTMENT & IND..

MULTI COMMODITY Announces Quarterly Results (2QFY22); Net Profit Down 43.3% (Quarterly Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

For the quarter ended September 2021, MULTI COMMODITY has posted a net profit of Rs 332 m (down 43.3% YoY). Sales on the other hand came in at Rs 832 m (down 30.5% YoY). Read on for a complete analysis of MULTI COMMODITY's quarterly results.

Indian Railway Finance Corporation IPO: Should You Apply? (IPO)

Jan 18, 2021

Monopolistic railway financer with impeccable asset quality.

LIC HOUSING Announces Quarterly Results (2QFY22); Net Profit Down 68.4% (Quarterly Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

For the quarter ended September 2021, LIC HOUSING has posted a net profit of Rs 2 bn (down 68.4% YoY). Sales on the other hand came in at Rs 47 bn (down 5.2% YoY). Read on for a complete analysis of LIC HOUSING's quarterly results.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

Dec 6, 2021

These penny stocks shed their penny status by surging 1,000% or more in the last one year.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS