InvestorQ : Is it true that the EPFO has cut the interest rates for this year?
diksha shah made post

Is it true that the EPFO has cut the interest rates for this year?

Answer
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2 weeks ago


No, as of now the EPFO has not reduced the interests but it will be paying the interest in two instalment of which the second instalment is not certain. The Employees Provident Fund Organisation or the EPFO may be in for an embarrassing moment this year.

To an extent, the EPFO is postponing the commitment because it not in a position to pay the full committed amount due to negative returns on the equity ETFs that the EPFO invested in. As a result, the EPFO will only be in a position to pay part of the committed interest.

The interest on the Employee Provident Fund or EPF was retained at 8.50% and there is no change in that. However, due to some bad equity ETF decisions, the government will only pay 8.15% now and the balance 0.35%, possibly in December 2020.

However, it is not certain, nor is the amount assured by the government, so as of now one can only consider 8.15% as the amount paid by the EPFO. COVID-19 resulted in the ETF portfolio of the EPFO taking deep cuts resulting in EPFO holders making huge losses.

Currently, the 8.15% will be paid from the debt income but the balance 0.35% will, perhaps, be paid by selling ETFs. EPFO is specifically meant for salaried persons in India and these are some of the risks of investing EPF money in equities.

The incident highlights some of the risks of investing in equities. However, globally, provident funds are long term funds and hence they do invest in equities and these risks will remain in the short term.