EPFO: Whenever there is a big fall in the stock market, the anxiety of the employed people increases. About the Provident Fund (PF) which is deducted from the salary every month, a question arises in the mind whether these savings will also sink with the market. This amount is very important to meet financial needs after retirement. Employees Provident Fund Organization (EPFO) not only keeps your money locked in its safe, but also earns money by investing it in different places.
Where does PF money stay?
EPFO distributes employee funds across various financial instruments instead of investing them in one place. Its aim is to achieve better returns with security of money. A major chunk of your PF fund is invested in government securities or government bonds. These investments are considered quite safe. There is every possibility of earning regular income from this. Apart from government bonds, EPFO also invests money in corporate bonds or other debt-based instruments.
As far as stock market is concerned, EPFO never buys shares of any company directly. To invest money in the stock market, the route of Exchange Traded Fund (ETF) is preferred. Through these funds, money is invested in companies included in major stock market indices like Sensex or Nifty.
Investment is determined by rules
EPFO cannot arbitrarily decide where and how much PF money will be spent. For this, strict rules and limits have been set by the central government. The entire process of investment is done as per Central Board of Trustees (CBT) and Government guidelines. Along with this, professional fund managers also play an important role in portfolio management and investment decisions. The sole objective of all these rules is to protect the hard earned money of the employees and earn good profit on it.
How is the interest rate determined each year?
It is not necessary that the interest rate on PF remains the same every year. Every financial year, the return on invested money is reviewed. After looking at the current financial position of the fund, the Central Board of Trustees (CBT) recommends fixing the interest rate of the PF. The Central Government gives final approval to this recommendation. The new interest rate is officially announced only after the approval of the government. Currently EPFO is offering 8.25 percent annual interest on PF deposits to its members. This may change in the future depending on the fund’s earnings or other financial matters.
Why is PF safe even if the market falls?
It is natural for PF account holders to worry when the stock market falls, but the structure of this fund insulates them from the risk. Since the entire PF money is not invested in the stock market, it is not at risk of sinking. Keeping a large portion of the fund in government or corporate bonds ensures stable income. At the same time, money invested in the stock market through ETFs offers an opportunity to earn additional profits in the long run. EPFO perfectly balances the risk by investing money in different places. This is the reason why stock market fluctuations do not directly affect the interest rate on your PF account.
