EPFO will pay interest in two instalments

NEW DELHI : The central board of the Employees Provident Fund Organization (EPFO) announced on Wednesday that it will pay 8.5% interest to its policyholders for the year ended March 31, 8.15% from debt investments and 0.35% from equity.

While some board members explained that this would be paid in two instalments, the Labor Ministry-controlled EPFO ​​said the central board had recommended an 8.5% payment without specifying whether the payments would be staggered.

“It would include 8.15% of debt income and the balance 0.35% (gains) from the sale of ETFs (traded index funds), subject to their reimbursement by December 31, 2020”, pension fund said in a note.

He did not clarify the phrase “subject to repayment” and whether that means the 8.15% payment is certain and the remaining 0.35% is subject to market risk.

“Investment in debt brings in almost 58,000 crore is in our hands, but equity gains are yet to be realized as unstable market conditions due to covid-19 delayed ETF selling as expected in March. Today it was recommended again for an interest rate of 8.5%, as announced in March 2020. But you can assume a slight degree of uncertainty in the interest rate of 0.35%, because the sale of ETFs will preferably take place under relatively better market conditions,” a board member said, requesting anonymity.

“There is no return on the 8.5% rate for the 2020 financial year, but the current situation has caused us to opt for two installments. Some of the investments could not be cashed in due to the bad market situation. Hence this new formula,” said Virjesh Upadhyay, another EPFO ​​board member and general secretary of the Bharatiya Mazdoor Sangh.

The pension fund body’s revenue in March was lower than expected due to the pandemic. In preparing the March revenue projection for the current fiscal year, EPFO ​​had considered revenue of between 2,700 crores and 3,500 crore from dividends and ETF sale. Revenue at the pension fund body has fallen due to weak markets, an EPFO ​​official said, speaking on condition of anonymity. However, the official declined to comment on how he would handle the situation if the market crash continues.

KE Raghunathan, board member representing employers, said EPFO ​​was expected to generate at least 2,700 crore in capital gains from investments made in 2016. This was factored into the March calculation before announcing the interest rate. But due to covid this could not be achieved. “EPFO said the 8.5% payment and share buyback will not change. However, as a general rule, this will be notified once the Ministry of Finance approves it,” Raghunathan said.

EPFO said its board, headed by Labor Minister Santosh Gangwar, had recommended the organization “recognize such capital gains in FY20 revenue as an exceptional case”. This means that the proceeds of the sale that will take place before December 31 will be credited to the previous year 2019. -20 wins, a departure from general practice.

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