EPFO (Employees Provident Fund Organisation) subscribers have a reason to be happy. As per a new proposal, you may receive a part of your retirement payout in the form of quasi-MF units that is proportionate to the sum invested in equities. The organisation invests its annual incremental corpus to the tune of Rs 1.4 lakh crore in two ways. They invest up to 15% of the corpus in stocks through exchange-traded funds. They invest the remaining in government securities and debt.
As of now, a subscriber gets a consolidated amount on retirement depending on the interest rate decided upon by the EPFO’s Central Board of Trustees (CBT). Implementation of this new proposal will mean they will disburse a part of the payout in units just like that of Mutual Fund that you can encash during exit or may defer the withdrawal by one or two years, based on the tenure decided by CBT for deriving better returns. Hence, it points to the fact that whatever dividend the organization earns annually on its equity investment will be distributed among 45 million subscribers.
If a subscriber wishes to withdraw his/her PF, then 85% of the total investment is paid with the applicable interest rate. And the rest 15% of the total investment in equity is paid by multiplying the units accumulated with the value of equity on that particular day.
If the proposal is implemented (presently, the Labour Ministry is in the process of finalizing the unitization policy) then over 45 million subscribers of the EPFO will become direct beneficiary of the dividend earned on equity investments. EPFO has been investing a part of their corpus in equities (starting at 5%) since the year 2015. During this period, the contribution jumped to 15%. Moreover, it fetched a cumulative return of 13.72%. While EPFO offered interest rates – 8.75%, 8.8% and 8.65% in the year 2015, 2016 and 2017 respectively.
However, the proposal has been opposed by trade unions citing the reason that returns are not assured and in the absence of any sell-off policy, the returns remain on paper and do not guarantee monetary benefits.
This proposal is supposed to be approved once the CBT convenes. The implementation of the proposal will enable the subscribers to check the status of their PF in terms of investment in debt and equity-based units allotted to them.