The government recently ratified an 8.25% interest rate on Employees Provident Fund deposits for the 78 million contributing subscribers for 2025-26. The rate remained unchanged for the third consecutive year and was the highest among other fixed-income & tax-saving avenues, writes Surya Sarathi Ray
l How is the interest rate determined?
THE CENTRAL BOARD of Trustees (CBT), the highest decision-making body of the Employees Provident Fund Organisation (EPFO), determines the interest rate by assessing the EPFO’s interest income from investments in various debt and equity instruments such as government securities, debt securities, and exchange-traded funds (ETFs).
Once the finance ministry ratifies the rate, it is credited to subscribers’ accounts. The interest is credited annually but is calculated on a monthly running balance basis throughout the financial year.
Generally, a small amount of surplus is kept for rainy days. However, as per a report by The Indian Express, the EPFO is estimated to have incurred a loss of Rs 944.06 crore on interest payouts in 2025-26 according to discussions during the CBT meeting in March. “An 8.10% interest rate, as suggested by the EPFO’s investment sub-committee, would have resulted in a surplus of Rs 1,675.82 crore. In 2024-25, based on the actual income and expenditure details shared in the meeting, the surplus was Rs 5,480.34 crore,” it said.
l What are the sources of the investible funds?
EVERY PRIVATE SECTOR employee contributes 12% of her basic salary plus dearness allowance to the EPF. The employer makes a matching contribution and must also bear the administrative charges for EPF and contribute to the Employees’ Deposit-Linked Insurance scheme, which amounts to 1% of its wage bill. Three schemes – provident fund, pension fund and insurance fund – are embedded into the EPF.
The EPFO puts its annual fresh accretions in the permissible investment categories, consistent with the approved thresholds. Fresh accretions are the sum of uninvested funds from the past and of receipts such as contributions to the funds, dividends, interest income, commissions, and maturity amounts of earlier investments, minus the obligatory outgoings during the financial year. In 2024-25, the EPFO received Rs 3,35,629 crore. The lion’s share — Rs 2,58,133 crore — was as contributions towards EPF from its subscribers.
l What are the investment categories?
THE EPFO INVESTS in accordance with the investment pattern notified by the ministry of labour and employment. The pattern and threshold change over time, in sync with the requirement of the day. In 2014-15, up to 55% of all incremental accretions was earmarked for government securities, the same for debt investments, and up to 5% for money market instruments.
However, as per its 2024-25 annual report, of all incremental accretions, 45-65% was permitted to be invested in government securities, 20-45% in debt and related investments, up to 5% in short-term debt instruments, 5-15% in equities and related investments and up to 5% in asset-backed, trust-structured and miscellaneous investments.
As of March 2025, the EPFO’s total investment corpus was Rs 28,37,054 crore. Of this, 14.87% was in central government securities, 43.46% in state development loans, 0.52% in state guaranteed securities, 1.97% in special deposit scheme, 8.2% was within public accounts with central government, 20.26% was invested as corporate bonds (public and private), 10.04% in ETFs, among others.
l Who manages the investments?
THOUGH THE CBT keeps a close watch on how the corpus is managed, invested, and distributed, the debt portfolio is managed by portfolio managers. UTI Asset Management Company (AMC) and SBI Fund Management are managing the debt portfolio. Their performance is evaluated against a dynamic performance benchmark developed by Crisil. The yield in 2024-25 was 7.33%, higher than the benchmark yield of 7.30% that year. SBI’s yield was higher at 7.34%, while UTI’s was 7.32%, as per Crisil.
In August 2015, the EPFO began investing 5% of the corpus in equities through an exchange-traded fund (ETF). Enthused by higher returns, this was raised to 15% of the fresh accretions from 2017. The equity money was earlier managed by SBI Fund Management and UTI AMC. Since July 2023, Nippon Life India AMC and ICICI Prudential AMC also started managing the corpus.
l Can investment pattern change?
QUITE POSSIBLE. AFTER all, the principle of investment is dynamic. The pattern has been changed many times over the years. The threshold has also been raised and lowered as needs have changed; new instruments have been introduced. As of March 2025, EPFO’s investment in ETFs was just over 10%, below the 15% limit.
The EPFO attributes its ability to offer 8%-plus interest rates for the past few years to its strong financial discipline, credit profile of its investment portfolio, and good returns from ETFs and other investments. Given the good returns the EPFO gets from ETFs, it could raise the actual investment to 15% in the not-so-distant future. Other instruments may also be looked at. While the ultimate aim is to offer the best returns to subscribers, prioritising higher interest payments without maintaining a surplus is not prudent.
The writer is a research scholar
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Investors should assess their financial goals, risk appetite and consult a qualified financial advisor before making investment decisions.
Every financial journey has a turning point. What’s yours?
Financial Express is launching a new series highlighting real experiences with money, investments, and the taxman. Did a sudden tax rule catch you off guard? Did a piece of financial advice change your life? Your story could provide invaluable, practical lessons for thousands of fellow taxpayers. Share your experience with us. We respect your privacy: no stories will be featured without a direct conversation and your full consent. Thank you.