How safe is your EPF (Employee Provident Fund)?


The full form of EPF is Employee’s Provident Fund. The provident funds are generally issued to all the salaried employees. The Employee’s Provident Fund is a scheme that benefits the individual in the later years of their life, i.e., when they get retired. Employees Provident Fund Organization of India (EPFO) maintains and regulates the EPFs and the interest rates that are applicable on the scheme. Employee’s Provident Funds are a form of investment made by the employee. The money that is deducted from your salary account every month feels like annoying but it is all in good hope. The Employee’s Provident Funds provides you a platform to save a fraction of amount from your salary which is transferred into your EPF and it is then given back to you after your retirement in the form of pension. The fraction of money that you can deposit into your Employee’s Provident Funds account can vary but it should be at least 12% of the total income of the month, and the employer also pays 12% of your income into your EPF which is divided fractionally into the EPFs and Employee’s Pension Scheme (EPS).


Changes that are taking place in the interests rate of the Employee’s Provident Fund

  • EPFs are generally not so much market linked and thus they provide you a fixed return with a fixed interest rate every financial year on the principal amount that has been saved. It has been witnessed that the steep fall in the interest rates have caused the interests rates of the EPFs to stumble and the interests rate are to be lowered in the October to December quarter.
  • Since the changes are amended quarterly and due to the political backlash no such changes were observed in the month of June by the Finance Ministry, the next trimester will bring about major changes.
  • The interest rates are directly linked with the government bond yields which have fallen greatly since the last cut rate in March.


Allocation of the sum in the Employee’s Provident Fund is shifting towards the Exchange Traded Funds (ETFs)

The EPFO have started the investment of the sum in the Employee’s Provident Fund into the equity funds. The fraction of money that is being invested into the ETF is mere 5% of the total sum of money in an individual’s Employee’s Provident Fund. The allocation was implemented from August 2015 to boost up the returns gained on the money deposited in the Employee’s Provident Funds. But the percentage is very small and thus is not able to give ample and significant returns.


The debate over the fraction of investment into the ETFs to be increased

The Government of India wants to expand the exposure rate of the Employee’s Provident Fund from 5% to 10%. The thought behind this proposal is that, as the exposure rate of the Employee’s Provident Fund will be higher towards the Exchange Traded Funds (ETFs); higher will be the returns on the amount.

The ETFs are completely dependent on the market and thus any fluctuations in the market would hamper the investment amount to a great extent if the exposure of the Employee’s Provident Funds is increased to 10%.

The Central Board of Trustees (CBT) of the EPFO is in total opposition of the notion. They are enforcing the facts that the investment of the workers’ salary into the equity funds should not be increased any further. Last year, due to the downfall in the market, the investments made into the equity funds turned out to give a negative value and they are also emphasising on the fact that the savings of the workers’ are at risk if the fraction of EPFs are increased.

The CBT of the EPFO also states that if the interest rates have fallen so much in the past six month then they will be providing the interests with a lower rate of 8.25% instead of the interest rate of 8.8% like in the previous financial year.

There are arguments presented before the officials that the equity funds need time to provide higher returns and that much time should be provided to the ETFs.


Is it time to worry about the money you have saved for your retirements into the Employee’s Provident Funds?

In the earlier times, when the EPFs were away from the stock market, these funds were able to beat the inflation in the past years. Since a very small fraction of the money from the EPFs is invested into the market, there is still major chances for the EPFs to beat any major changes in the market, says the financial experts.

It is also suggested to properly plan the finances and accounts, so as to create a backup for you in the future years. Financial planners in Mumbai, Delhi or any other place where you are working can help you and advise you to invest into useful insurance and investment schemes. Find the best financial planner in Mumbai or any other place in the country which can fulfil the requirements of your present and future financial needs.