Forced to invest your hard earned money? Yes, let’s talk about the employee provident fund, which is famous for being a compulsory investment. If you are a salaried employee, you have to compulsorily invest a part of your salary, in the employee provident fund. The employee provident fund is managed by the Employees Provident Fund Organisation of India, popularly called EPFO.
Any Company which has more than 20 employees, has to compulsorily register with the EPFO. So what is this EPFO? An amount of 12% of your basic salary, is compulsorily deducted by your employer. This amount is deposited in an account in your name, called the employee provident fund. Your employer makes an equal contribution (contributes the same amount as you have contributed), to this account. This account is maintained by the EPFO. A small portion of your employer’s contribution, goes to an account called the EPS (Employee Pension Scheme). The money in this account gives you a pension after retirement. The EPFO used to pay an interest rate of 8.8% a year, for the Financial Year 2015-2016. Now the EPFO has cut interest rates, offered on the employee provident fund. This is real bad news for you.
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The Employee Provident Fund Organization has more than 4 Crore subscribers. You and 4 crore subscribers, earn interest on your EPF contribution. The Employees Provident Fund Organisation, had a meeting today. In the meeting it was decided that EPFO would offer an interest of only 8.65% a year, for the current fiscal year 2016-2017.
Yes, you and 4 crore subscribers, will receive lesser interest on your EPF contribution. This is lesser than the 8.8% interest a year, you used to get in the financial year 2015-2016.
There has been a general fall in interest rates, offered by different financial savings instruments. Yes, interest rates are going down in the economy. Banks are offering lesser interest on fixed deposits. Small saving schemes like PPF, NSC and even postal saving schemes, are offering lesser interest. After the scrapping of 500 and 1000 rupee notes, citizens have deposited a lot of money in banks. Most of this money is deposited in savings bank accounts and current bank accounts.
Banks offer very less interest on savings bank accounts. As banks are getting most of the money they need to lend, from money deposited in CASA (Current accounts/Savings bank accounts), why should they offer you, high interest on fixed deposits? Banks are cutting interest rates offered on fixed deposits. Banks offer around 7-7.5% interest a year, on fixed deposits.
The Government has already cut down interest rates, offered on highly popular small saving schemes like Public Provident Fund, The 5 year Senior Citizens Saving Scheme and the 5 year National Savings Scheme. These small saving schemes, offer an interest of around 8-8.5% a year. If banks are offering very less interest on fixed deposits and the Government is offering less interest on small saving schemes, why should the EPFO offer 8.8% interest a year, for the Fiscal Year 2016-2017?
Finally…The Finance Ministry wanted to lower interest on employee provident fund deposits, for Financial Year 2015-2016. The Central Board of Trustees, popularly called CBT, is the apex decision making body of EPFO. The Government had even secured approval from CBT, to reduce employee provident fund rates, for Financial Year 2015-2016. However, protest by trade unions, forced the Government to take back the decision. Be Wise, Get Rich.
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