Interest On Pf Deposits May Be Raised To 13%

The central board of trustees of the employees provident fund has recommended that the annual interest earnings from the governments special deposit schemes (SDS) be allowed to be invested in securities or bonds of the financial institutions (FIs) and public sector undertakings next year.

At a meeting with the representatives of the FIs yesterday, the board also recommended an increase in the interest on provident and pension funds from 12 per cent to 13 per cent. The meeting was presided over by Union minister of labour M Arunachalam.

The interest earnings of around Rs 3,000 crore are currently reinvested in the SDS which has a yield of 11.9 per cent. Once the recommendation gets the governments concurrence, it will result in the release of up to Rs 1,200 crore in annual incremental contributions to the corpus (more than Rs 51,000 crore) for investment in FI and PSU papers.

The board also suggested that the private sector should not be allowed to bid for managing the annual incremental funds. Only the FIs should be eligible to manage the incremental corpus and the selection process will be through competitive bidding, the board suggested. It also asked the government to stand guarantee for investments made by the funds in the FIs or in PSU bonds.

The board also suggested that the investment in government securities should be scaled down to 30 per cent from 40 per cent of the funds incremental corpus. However, a decision on increasing the minimum contribution to the provident fund has been deferred.