Under the pressure from the various trade unions, Union Government Increases Employee Provident Fund (EPF) Interest Rate by 5 basis point or 0.05% to 8.8% now. Earlier it was 8.75% where interest rate on various savings instruments were cut by 50 to 100 basis points.
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Government already have made the interest rate on common investment instruments like Public Provident Fund (PPF), National Savings Certificate (NSC), post office monthly income scheme , Sukanya Samridhi Schemes etc. market linked and will be reviewed on a quarterly basis. (Read : – Small Savings Schemes Interest Rate Cut on PPF,Post Office, KVP etc.)
This is to remember that the Interest rate 8.8% announced for Employee Provident Fund (EPF) is for financial year 2015-16. It is on government who may reduce or increase the interest rate on EPF.
Government has to look after as the maximum Indian salaried class depends on EPF retirement corpus as retirement security. If government have to make any policy related to EPF contribution, they must have to create a social security option for retiree first. Due to this it is believe that EPF rate continues to be shielded for now.
What Investor have to do Now ?
if Interest rate on EPF reduced by government what would be the investor option ? They need to look after the other option i.e. Voluntary Provident Fund (VPF) rather than PPF. Interest rate on Public provident fund reduced to 8.1% which is comparably lesser than existing EPF rate.
VPF is the additional contribution, i.e. over and above the mandatory contribution in the EPF i.e 10% or 12%. The additional portion where the employer doesn’t contribute but fetch the same interest rate as EPF.
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The Income tax benefit on VPF is similar to EPF. In my view investment under VPF i.e. Voluntary Provident Fund is more smarter way to get the best return in long term.
