Mar 052013
 

EPF interest rate increased to 8.5% for the year 2012-13

EPF has come up with a mount in interest rate, taking it to 8.5%  for the year 2012-13. The interest rate for the new fiscal year is 8.5% , as compared to the 8.25% in the previous year. As one basis point equals 0.01%, the 50 million subscribers of the employees’ Provident Fund Organisation will earn 8.5% with the 25 basis point increase. The trade unions’ demand of 8.6% interest still remains unfulfilled . The Central Board Of Trustees (CBT) explains that with the proposal of paying 8.6% interest , they would be left with a Rs 240 crore deficit, while  the 8.5% rate allows a surplus of Rs. 400 crore.

But , the trade unions whose proposal was not accepted, have argued upon as to if the banks pay 9-10% and the government pays up to 8.8% , then why only 8.5% is being paid. Albeit there is a   rise from previous year’s 8.25 to 8.5%,it is much less than the PPF rates or Bank fixed deposits rates.  The previous years’ interest rate has been a considerable decline from 9.55 in 2011-12 to 8.25% in 2011-12. The EPF rates in 2011-12 were decreased to 8.23% from the 9.25%  in 2010-11,while there was an increase in PPF rates from 8.6% in 2012-12 to 8.8% in 2012-13. The CBT  has relaxed the rules in order to permit the EPFO invest in corporate bonds up to 25 year maturity from the present 15 years.

Also, the EPFO has allowed the fund manager to invest in debt market in order to improve earnings. The CBT commissioner has stated that a bit of relaxation in the rules is done so as to ease investment in debt market.

The EPFO can invest in the following seven firms along with the investments in bonds of PSUs.

  • HDFC Bank Ltd
  • ICICI Bank Ltd
  • Axis Bank Ltd
  • LIC Housing Finance Ltd
  • IL&FS Ltd
  • IDFC Ltd
  • Housing Development Finance Corp. Ltd.

The EPFO has come up to the decision to invest in AA or AAA rated bonds of companies that have a minimum net worth of Rs 3000 crore with a 15% dividend paying track record. However, they will refrain from investing in stock market as decided by the organization.

The new investment pattern is expected to yield higher returns, as per the central provident fund commissioner.