Source | The Economic Times : By Yogima Sharma

EPFO may give part payout in MF-like units

NEW DELHI: Subscribers to the Employees’ Provident Fund Organisation (EPFO) may soon get part of their retirement payout in the form of units proportionate to the money the state-run pension fund invests in equities, a senior official said.

EPFO invests up to 15% of its annual incremental corpus — pegged at Rs 1.4 lakh crore — in stocks through exchange-traded funds (ETFs) to take advantage of higher returns from equities. The rest of the money is invested in government securities and other forms of debt.

However, on retirement, the subscriber gets a consolidated sum based on interest rate decided by the EPFO’s central board of trustees (CBT). If the proposal cited above is adopted, then part of this payout will be in the form of units, similar to that of a mutual fund, that can be encashed at time of exit. This would also mean that the dividend earned by EPFO annually on its equity investment will be distributed among its 45 million subscribers, thus fetching them higher returns.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The return on equity investment isn’t factored in while calculating the interest rate declared every year nor is it reflected in the PF statement. The cumulative return on EPFO’s investment in equity was 13.72% until May in the two years since it began putting money in ETFs.

EPFO declared an interest rate payout of 8.75% in FY15, 8.8% in FY16 and 8.65% in FY17. The labour ministry is finalising the unitisation policy, said the official cited above.

“The policy has been discussed with stakeholders and we hope the central board of trustees will approve of it when it meets later this month,” the official added. If this proposal is implemented, subscribers can check the status of their PF in terms of investment in debt and equity-based units allotted to them. A subscriber may also be allowed to delay encashment of the units at the time of exit.

“Once a subscriber decides to withdraw their PF, 85% of total investment is paid back along with the rate of interest declared while their 15% of total investment made in equity is paid back by multiplying the units accumulated with the value of equity on that particular day,” said the official cited above.

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