The EPF interest rate for 2016-17 is fixed at 8.65%. The 17 crore EPF account would earn this interest rate from 1st April 2016 to 31 March 2017. This is the lowest in the last seven years. Last financial year the rate was at 8.8%.
Employees Provident Fund Organisation (EPFO)’s central board of trustees has fixed this interest rate. The labour minister Bandaru Dattatreya is the chairman of this trust.
However, EPFO projection has showed that the EPF interest rate of 8.62% would be feasible. But EPFO trustees decided to keep it slightly higher.
EPFO could not give a higher interest rate because it’s debt investments gave slightly lower return. As you would know the interest rates are falling. The EPFO has started to invest in shares but proportion is very small.
EPF Interest Rate VS Other Saving Scheme
Interest Rate of Government Schemes
|Saving Instrument||Interest Rate (%)|
|Employee Provident Fund||8.65|
|Public Provident Fund||8.0|
|National Saving Certificate||8.0|
|Senior Citizen Saving Scheme||8.5|
|Sukanya Samriddhi Account||8.5|
|Kisan Vikas Patra||7.7|
How EPFO Decides the Interest Rate
EPF interest rate is not fixed at the beginning of each financial year. Rather, EPFO gives interest according to the earned profit.
EPFO invests almost all of its corpus in government securities. Since government securities give a fixed return, the EPFO almost know the overall profit at the end of the financial year. From this profit, EPFO deducts its own expense. The remaining profit is considered for the equitable distribution among all the EPF members. To make it simple, EPFO reaches at an interest rate.
Due to this mechanism, the interest rate of EPF is declared for the outgoing financial year. So, if there would be an increase in the interest rate, it would be for 2015-16.
Also Read: 8 Secret Rules of EPF That Everyone Misses
What Should be Your Step
The new interest rate of EPF does not give a guarantee for next financial year. But, you get an indication that EPFO can earn good returns. The return from EPFO is tax-free thus your real return would be higher.
Meanwhile, EPFO has started to invest in the stock market as well. It has invested 5% of new contribution into the share market. EPFO is treading very cautiously into the share market. However, share market can further increase the interest from EPF.
If EPF starts giving a good return, you can increase your contribution to the EPF. Currently, 12% of the salary is mandatory for EPF contribution. But, you can increase this contribution up to the total basic pay. By increasing the PF contribution, you can accumulate a bigger corpus for the retirement.
It is also necessary that you transfer you PF balance from the old PF account to new account. The UAN has made EPF transfer and EPF withdrawal very easy. Keep faith on EPF because it is a time-tested retirement scheme.