The EPFO [Employees’ Provident Fund Organisation], one of the world’s largest provident fund organisation has decided to hike the interest on the Provident fund accounts by one percent. Thus, the interest earned on the savings in Provident Fund now stands at 9.5%.
The last time the interest for Provident Fund got raised was in 2005-06 when the interest was fixed at 8.5%. Between 1989-90 and 2000, the interest rate on Provident fund was 12%. Even during recession the rate was unchanged. Thus the present move takes the provident fund interest to a five-year high. Then why suddenly a rate hike even when it has been on demand for quite a few years. A review of all the Provident Fund account showed that there is an unclaimed balance, called as the interest suspense account with the EPFO, which is actually a corpus of unclaimed amount ,that is the difference between receipts and disbursements. The interest suspense account has a balance of Rs.1,731 crores at present while the interest hike would result in an outgo of only Rs.1,600 crores.
The Central Board of Trustees of the Employment Provident Fund Organisation has also decided to continue with the current investment pattern of the amount in Provident fund which is investment in Government backed securities and bonds. The amount will not be invested into stock markets which normally involves high risk.