EPF interest rate hits 5-year low at 8.55%; what should you do?

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New Delhi | Updated: May 26, 2018 10:25:38 AM

The government has finally notified 8.55% interest rate on EPF for 2017-18, lowest in 5 years since the 2012-13 fiscal.

Retirement fund body has asked its field offices to credit 8.55 per cent rate of interest for 2017-18, the lowest rate since 2012-13 fiscal, into the PF accounts of around 5 crore subscribers. (PTI)

Bad news for the EPFO subscribers. The government has finally notified 8.55% interest rate on EPF for 2017-18, lowest in 5 years since the 2012-13 fiscal. With this the Employees’ Provident Fund Organisation has asked its more than 120 field offices to credit 8.55% rate of interest for 2017-18 into the PF accounts of close to 5 crore subscribers. EPF’s rate of interest for 2016-17 was 8.65%.

It may be noted that the Central Board of Trustees (CBT), the apex decision making body of EPFO, headed by the labour minister, had decided to fix 8.55% interest on PF for 2017-18 in its meeting held on Feb 21, 2018. The labour ministry had sent this recommendation to the ministry of finance for its concurrence. That, however, couldn’t be implemented for want of the finance ministry’s concurrence and was further delayed owing to the model code of conduct for the Karnataka election on May 12.

Salaried people are now worried particularly in the wake of the PF interest rate hitting the 5-year low and are wondering over their next move in the current scenario as no one can say with certainty that the PF rate won’t fall further going ahead. The problem is that the PF contribution is mandatory for the salaried class in most of the organisations. So, what to do? Should they still continue with EPF or think of switching to some other options like the NPS? Or a combination of both will be ideal?

“NPS can certainly deliver higher returns than EPF over the long term if one opts for its equity option. However, preferring NPS over EPF has its pitfalls. First, NPS is a market-linked instrument while EPF is backed by sovereign guarantee. Second, EPF offers higher liquidity as you can withdraw the entire corpus if you remain unemployed for two months or more. In case of NPS, you can withdraw only up to 25% of your accumulated NPS corpus within 3 years of subscription but only for a few limited reasons — critical illness, purchase/ construction of house property, children’s marriage/ education, pursuing higher education and for setting up a new business,” says Naveen Kukreja, CEO & Co-founder, Paisabazaar.com.

Moreover, EPF withdrawals made after 5 years of continuous employment are totally tax-free while only 40% of NPS maturity amount is tax-free. Additionally, only 60% of the NPS maturity amount can be withdrawn lumpsum after retirement while the rest has to be used for buying annuities.

Therefore, go for other options looking at your retirement goals and risk profile. According to financial experts, PF contribution is mandatory for most of the salaried people. So, it can’t be done away with. It is also a fact that despite falling interest rates, PF is still a good option for generating one’s retirement corpus. However, investing in it alone may not be enough for one’s future. Therefore, a combination of EPF and NPS may be considered, in view of the fact that the NPS withdrawal rules have been relaxed recently. One should also look for some other investment options like mutual funds and ELSS for higher returns.

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