Good news is coming for the nearly eight crore Employees Provident Fund (EPF) subscribers in India. The government is planning a big step to increase the interest rate on the future savings of millions of employees.
The Employees Provident Fund Organisation (EPFO) has admitted that there are some problems in the current rules for investing EPF money. Because of these wrong investment rules, subscribers were not getting the full profits they deserve. Now, a proposal to fix these rules is waiting for final approval.
This new proposal was passed in a meeting of the Central Board of Trustees of the Provident Fund and has already been cleared by the Labour Ministry. It has now been sent to the Finance Ministry for final approval. If the Finance Ministry gives the green signal, PF subscribers will get a chance to earn higher returns.
Why was there a need to change this rule?
According to the current EPFO rules, a large part of the salary deposited in PF is invested in bonds and the stock market. Part of the profit from these investments is given to customers as interest.
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The problem is that the rules say at least 20% of the money should be invested in bonds of public sector companies. But in reality, high-return bonds are not available in enough quantity. Because of this, portfolio managers are often forced to invest at low interest rates. This reduces the interest customers get. To solve this, a change in investment rules has been proposed.
What changes have been proposed?
Two main changes were proposed in the Central Trustees meeting to increase customer returns:
Investment in bonds of public sector companies:
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Currently, at least 20% of PF money must be invested in bonds of public sector companies. It is now proposed to reduce this to 10%. This will reduce the need to invest in low-return bonds.
Investment in Government Securities (G-Sec):
Currently, a maximum of 65% of PF money can be invested in Government Securities. It is proposed to increase this to 75%. Government Securities are safer and give good returns, so this change will increase customer profits.
Investment Area Current Rules Proposed Rules
Bonds of state-owned enterprises Minimum 20% (Maximum 45%) Minimum 10%
Government Securities (G-Sec) Maximum 65% Maximum 75%
Potential Interest: Up to 8.5%
SP Tiwari, Central Trustee Council member and TUCC General Secretary, said they have also asked to increase investment in Exchange Traded Funds (ETFs). ETFs linked to the stock market give high returns. If these proposals are approved, customers may get interest up to 8.5%. He hopes the Finance Ministry will approve soon, which will make millions of PF customers happy.
