Sources in the Employees’ Provident Fund Organisation (EPFO) has quashed reports that it may fail to pay 8.5 percent interest rate to the subscribers, saying there is nothing to panic.
Earlier, Hindustan Times reported that the market collapse may not allow the Employees’ Provident Fund Organisation (EPFO) to pay the promised 8.5 percent return to its 60 million subscribers in FY20.
Moneycontrol could not independently verify the HT report.
Sources have also said that EPFO has enough reserves outside ETF units to meet the said interest rate commitment. It has already sought extension on liquidation of ETF stock due to the market fall.
The source has also confirmed that EPFO will not add to market turmoil by selling ETF holdings as it has enough safeguards to ward off market volatility on EPF investments.
The HT report said that EPFO had failed to redeem a significant amount of its investment of Rs 95,500 crore in exchange traded funds (ETFs) before March 11, when the World Health Organisation (WHO) termed coronavirus as a pandemic. After the announcement, the stock market saw bloodbath hitting lowest lows every following day.
EPFO failed to redeem a significant amount of its investment of Rs 95,500 crore in exchange traded funds (ETFs) before March 11, when the World Health Organisation (WHO) termed coronavirus as a pandemic. After the announcement, the stock market witnessed a bloodbath, touching fresh lows every single day.
In 2015, the EPFO invested in equities for the first time, with the labour ministry capping the exposure at 5-15 percent of its corpus. Starting with 5 percent investment in 2015, EPFO raised the exposure to 15 percent as of May 2017, a government official told the publication.
Earlier on March 6, at the meeting of the Central Board of Trustees (CBT), officials said EPFO had enough funds - thanks to government bonds and securities - to pay interest at the rate of 8.15 percent to its subscribers. The remaining 0.35 percent was expected to be encashed via ETFs, officials told the statutory body.
One of the sources told HT that the option of encashing ETFs was 'notional' as the market was up the previous day. Sensex and Nifty hit three-year lows earlier on March 18 as the market fears another recession after 2008. Experts told the paper it may even be worse than what happened 12 years back.
Interestingly, though, the government is not allowed to reduce the decided interest rate, the report quotes CBT member Virjesh Upadhyay as saying.
The general secretary of the Bharatiya Mazdoor Sangh (BMS), who was not present at the meeting on March 6, said the decision taken by CBT on the fund was 'final'.
At the same time, EPFO subscribers need the approval of the finance ministry for the rate of return.