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Provident Fund interest rate stays at 8.5 per cent
Over 45 million subscribers of the Employees Provident Fund (EPF) will get 8.5 per cent return for 2009-10 on their deposits at a time banks are lowering deposit rates across the board.

Two days before the Budget, the Employees Provident Fund Organisation (EPFO) today decided to retain 8.5 per cent rate for the fifth consecutive year.

The decision was taken by EPFO’s policy-making body, the Central Board of Trustees (CBT), chaired by Labour Minister M Mallikarjun Kharge. The decision will now go to the finance ministry for ratification.

Payment of 8.5 per cent rate on provident fund deposits, which are of the order of Rs 182,000 crore, is expected to leave a surplus of Rs 6.4 crore during the current fiscal.

The EPFO decided to retain the rate even as the interest rates being paid by banks had been coming down in the recent past. The country’s largest bank, SBI, decided to cut deposit rates by 25 to 50 basis points in May. Several other banks followed suit.

Sources said the EPFO had no reserves left to pay more than 8.5 per cent this fiscal as it had suffered a Rs 139 crore deficit in 2008-09.

The board, however, deferred the decision on investing 15 per cent of its corpus of about Rs 182,000 crore in equity, a move that could have seen Rs 25,000 crore flow into the capital markets.

“We will separately look into it (investing in stock markets). Naturally, safety and security is the most important. The returns are also important. Looking at all those things, we (will) decide,” said Kharge.

The issue, he said, would be taken up in the next meeting of the board, the apex policy-making body of the EPFO.

In August last year, the finance ministry had suggested to the EPFO an investment pattern under which the organisation could park up to 15 per cent funds in companies listed on the Bombay Stock Exchange and the National Stock Exchange as well as equity-linked schemes of Sebi-regulated mutual funds.

The proposal was rejected by the EPFO’ advisory body, the Finance and Investment Committee, on March 26.

“A large number of members in today’s meeting, including Union Labour Minister M Mallikarjun Kharge and Minister of State for Labour, Harish Rawat, were not in favour of investing 15 per cent of funds in the stock markets,” said CBT member and Secretary, Hind Mazdoor Sabha, AD Nagpal.

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