InvestorQ : Is it true that the EPFO is going to default on its interest payout this year due to losses? What happens to the PF holders?
Archita Jajjoo made post

Is it true that the EPFO is going to default on its interest payout this year due to losses? What happens to the PF holders?

Answer
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Niti Shenoi answered.
1 week ago


I would not really call it a default because they have only postponed the payout to the employees. Let me explain. Employee Provident Fund Organization or EPFO will pay only 8.15% out of the 8.50% interest committed by the government for FY2019-20.

Now, what about the balance? The balance of 0.35% will be paid in December 2020 but that is assuming that there is an equity surplus available with the EPFO corpus. The 8.15% is being paid out of debt earnings and 0.35% can only be paid out of equity ETF earnings.

Let me quickly take you back to the idea of equity investing by EPFO. Government had permitted EPFO to invest up to Rs.100,000 crore in equities via the ETF route with a set of registered mutual funds.

The problem arose because equity component has given negative returns of -8.3% for the year. This is largely on account of the negative impact of COVID-19 and the lockdown. Due to the huge gap in returns, EPFO is putting off paying the balance 0.35% to December.