Recently the government has approved 8.25% interest rate on Employees Provident Fund (EPF) for the financial year 2025-26. This is the third consecutive year when there has been no change in the interest rate. For more than 7.8 crore EPF account holders, this rate is considered better than fixed income and many other tax saving investment options.
How is the interest rate of EPF decided?
The interest rate on EPF is decided by the Central Board of Trustees (CBT), the highest decision-making body of the Employees’ Provident Fund Organization (EPFO). The board looks at how much return EPFO has received from investments like government bonds, corporate bonds, government securities and exchange traded funds (ETFs).
After this the interest rate proposal is sent to the Finance Ministry. After getting the approval of the government, this interest is deposited in the EPF account of the account holders. Although the interest is added to the account once a year, it is calculated every month on the basis of the balance in the account.
Where does EPFO get money for investment from?
Every employee working in the private sector deposits 12% of his basic salary and dearness allowance (DA) in EPF. The employer also deposits the same amount. Apart from this, the company also has to contribute to administrative charges and Employee Deposit-Linked Insurance (EDLI) scheme.
Contributions received by EPFO, interest, dividends, commission and the amount received from maturity of old investments are invested. EPFO received a total of Rs 3.35 lakh crore in the financial year 2024-25, of which Rs 2.58 lakh crore came from EPF contributions of employees and employers.
Where does EPFO invest money?
EPFO invests money as per the investment rules set by the Ministry of Labor and Employment.
As per the current rules the amount of new deposit:
- 45% to 65% in government securities,
- 20% to 45% in debt and related investments,
- Up to 5% in short term debt instruments,
- 5% to 15% in equities and ETFs,
- And up to 5% can be invested in other investment options.
The total investment fund of EPFO till March 2025 was Rs 28.37 lakh crore. In this, the largest part has been invested in development loans of state governments, government bonds, corporate bonds and ETFs.
Who manages these investments?
EPFO’s debt portfolio is managed by SBI Fund Management and UTI Asset Management Company (AMC). Whereas equity investments are managed by SBI Fund Management, UTI AMC, Nippon Life India AMC and ICICI Prudential AMC.
In the year 2015, EPFO started investing in ETF for the first time. Initially only 5% was invested, which was allowed to be increased to 15% in 2017.
Could the way of investing change going forward?
Yes, EPFO has been changing its investment policy from time to time. The investment limit can be increased or decreased as per need and new investment options can also be added.
EPFO’s actual investment in ETFs till March 2025 was around 10%, while the maximum limit is 15%. Considering good returns, investment in ETF can be increased in future. Although EPFO says that it is important to give better interest to the account holders, but along with this it is equally important to maintain adequate surplus with the organization.
Leave a Reply