| Employees' provident fund accounts are likely to earn at least 9% return in 2011-12 as a combination of lower-than expected outflow from inoperative accounts and a high interest regime is prompting the Employees Provident Fund Organisation (EPFO), the body that manages EPF accounts in the country, to consider announcing a higher than-normal rate of return for the second year in a row. Amid opposition from the Finance Ministry, the EPFO had announced a 9.5% rate of interest for 2010-2011, which was more than 8.5% it had offered in the previous five years. This was supposed to be a one-off offer as the EPFO had discovered an additional Rs 1,700 crore lying in its suspense account. A government official said an interest rate of 9% or higher was a distinct possibility for the next year as well. "The continuous rise in interest rates and the low levels of claims made from inoperative account has resulted in a situation where the government could comfortably declare a 9% or higher return on PF deposits," said the official. The EPFO, which manages over 4.7 crore EPF accounts, fixes the annual interest rate on provident fund savings before a fiscal begins so that the dues of those who retire during the course of the year can be settled. The Central Board of Trustees (CBT), the highest decision-making body of the EPFO, is likely to meet soon to decide the interest rate for the next fiscal and also to take a call on whether interest on in-operative accounts should be distributed amongst operational account holders. "The issue will be placed before the trustees. The chances of the CBT taking a favourable decision is high as the ultimate objective of the fund is to maximise yields for subscribers," the official said. The CBT consists of representatives of trade unions and employers' bodies and is headed by the labour minister. The EPFO manages more than Rs 3 lakh crore of PF deposits of employees in the organised sector, covering all establishments employing more than 20 workers. Employers are obligated to deduct 12% of the basic salary of their employees every month and deposit this to the PF account of each employee. They are also required to make a matching contribution to each employee's account. The bigger organisations can manage these funds in-house under strict watch of the EPFO and have to match the returns declared by it. In a clean-up exercise last year, the EPFO had said it would stop paying interest on inoperative accounts - ones that have remained idle for three continuous years - to encourage subscribers to withdraw funds or merge them with operative accounts. However, despite a heavily advertised campaign, not many subscribers have come forward to settle these idle accounts that have a balance of nearly Rs 15,000 crore. The EPFO does not expect more than Rs 5,000 crore outflow from these accounts. This would mean that an additional interest earning of about Rs 900 crore from the remaining Rs 10,000 crore would be free to be distributed among subscribers with operational accounts. "It would allow EPFO to give an additional 0.5%interest," the official said. In addition, the near 1% rise in interest rates on government securities will also fetch higher returns on the incremental inflows and amount that is reinvested from maturing investments. "Although most of the investments made by the EPFO are long term in nature, the fresh deposits and the matured investments that are invested will earn more returns resulting in an estimated 8.75% overall yield," the official said. Check out Brand Equity's Most Trusted Brands List 2011 Source:ET |
Print
PDF
For Further Reading,
About the Author
0 comments:
Post a Comment