He added that EPFO is able to offer this high rate because its portfolio consists of many older bonds which offer a higher rate. Subscribers should, in fact, prepare themselves for the day when EPFO will announce a fixed rate only for its debt portion (which may be lower) while for the equity portion it will assign units to investors.
Trade union leaders present in the meeting held on Wednesday said the government was pushing to keep the interest rate at 8.5 per cent – a proposal that was vehemently opposed by them. After opposition from all labour unions, the Minister decided to keep the interest rate at 8.55 per cent.
At 8.55 per cent interest rate, the EPFO will retain a surplus of Rs 8.5 billion. EPFO has been keeping a portion of its income as surplus of income over liability. At the present rate of 8.65 per cent, the EPFO would have left with a surplus of Rs 480 million and at 8.60 per cent, the surplus would have stood at Rs 3.2 billion.
Gangwar explained that the rate of interest offered under EPF schemes is much higher than the return of 7.6 per cent offered under General Provident Fund (GPF) and Public Provident Fund (PPF).
“Last year when we announced our rate of interest at 8.65 per cent, GPF subscribers got 8 per cent rate of return. So the difference was of 0.65 per cent. Now, the difference between the interest rates is 0.95 per cent,” EPFO central provident fund commissioner V P Joy justified.
In the January to March quarter, PPF and National Savings Certificate will fetch a lower annual rate of 7.6 per cent while Kisan Vikas Patra will yield 7.3 per cent and mature in 11 months. The girl child savings scheme, Sukanya Samriddhi Account, now offers 8.1 per cent whereas term deposits of one-five years will fetch a lower interest rate of 6.6 per cent -7.4 per cent, to be paid quarterly, while the five-year recurring deposit is pegged at 6.9 per cent.
And in the past year, medium and long term gilt funds have also performed quite badly. The category average returns of these schemes is just 2.08 per cent. And this is mainly due to the rising yields in 10-year bonds.