The central board of the Employees’ Provident Fund Organisation (EPFO) on Wednesday said it will pay 8.5% interest to its subscribers for the year ended March 31, 8.15% from debt investments and 0.35% from equity.
While some board members explained that this will be paid in two instalments, the labour ministry-controlled EPFO said the central board of trustees has recommended an 8.5% payout without specifying whether the payments would be staggered.
“It would comprise 8.15% from debt income and the balance 0.35% (gains) from the sale of ETFs (exchange-traded funds), subject to their redemption by December 31, 2020”, the retirement fund said in a note.
It did not clarify the phrase “subject to redemption” and whether it means the 8.15% payout is certain, and remaining 0.35% is subject to market risks.
“The debt investment returns of almost ₹58,000 crore are in our hands, but the equity gains are yet to be realised, as the choppy market conditions due to Covid-19 have delayed the sale of ETFs as planned in March. Today, it was recommended again for 8.5% interest rate as announced in March 2020. But you may assume a small degree of uncertainty in the 0.35% interest rate as the sale of ETFs will happen preferably in a relatively better market condition,” a board member said requesting anonymity.
“There is no going back on the 8.5% rate for FY20, but the current situation has pushed us to go for two instalments. Some of the investments could not be encashed due to the bad market situation. Hence, this new formula,” said Virjesh Upadhyay, another board member of the EPFO and general secretary of the Bharatiya Mazdoor Sangh.
The retirement fund body’s earnings in March were lower than expected because of the pandemic. While preparing the income projection in March for the given financial year, EPFO had factored in an income between ₹2,700 crore and ₹3,500 crore from dividends and sale of ETFs. The retirement fund body’s income declined due to bad markets, an EPFO official said, seeking anonymity. However, the official declined to comment on how it will deal with the situation if the market meltdown continues.
KE Raghunathan, a board member representing staff, said EPFO was supposed to generate at least ₹2,700 crore as capital gains from investments made in 2016. This was factored in the March calculation before announcing the rate of interest. But due to Covid, it could not be realised.