The labour ministry has decided to reduce the rate of interest on the Employees Provident Fund to 9.5 per cent from 10.25 per cent.
The decision has been conveyed to the EPF Board of Trustees by the ministry, recently. Incidentally, the labour minister is the ex-officio chairman of the Board of Trustees.
The EPF, the largest provident fund in the country servicing over 2.45 crore depositors, had stuck to its gun to pay a 10.25 per cent interest on deposits, despite the announcement of cut in rate of interest on all small savings instruments in the Budget including those on the government provident fund.
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Also, the EPF stuck to a higher rate of interest though under the new interest rate regime it will earn an average rate of 9.56 per cent on its investment.
The EPF decision went against the finance ministry recommendation, which had formally advised the labour ministry immediately after the Budget, to reduce the rate to 9.5 per cent.
The advice was based on the rationale that since about 80 per cent of the income of the EPF comes from the special deposit schemes, which earns 9.5 per cent rate of interest, the fund should not try to sustain an artificially higher rate. The rest is parked in central and state government securities.