For individuals in the organized sector, the Employees Provident Fund (EPF) is a worthy social security government-backed scheme to build a nest egg for retirement, an inescapable truth of life. Over the years, the EPF interest rates have moved up and down in response to the interest rate environment (closely in line with government securities).

Year % Rate of Interest Announced Increase / Decrease / Constant % Change
2000-01 11% Decrease -1.00%
2001-02 9.50% Decrease -1.50%
2002-03 9.50% Constant 0%
2003-04 9.50% Constant 0%
2004-05 9.50% Constant 0%
2005-06 8.50% Decrease -1.00%
2006-07 8.50% Constant 0%
2007-08 8.50% Constant 0%
2008-09 8.50% Constant 0%
2009-10 8.50% Constant 0%
2010-11 9.50% Increase 1.00%
2011-12 8.25% Decrease -1.25%
2012-13 8.50% Increase 0.25%
2013-14 8.75% Increase 0.25%
2014-15 8.75% Constant 0%
2015-16 8.80% Increase 0.05%
2016-17 8.65% Decrease -0.15%
2017-18 8.55% Decrease -0.10%
2018-19 8.65% Increase 0.10%
2019-20 8.50% Decrease -0.15%
2020-21 8.50% Constant 0%
2021-22 8.10% Decrease -0.40%
2022-23 8.15% Increase 0.05%


The current interest rate offered on the EPF account is 8.15% p.a. (calculated monthly) and applies even to the voluntary contribution of the employee (which can be a maximum of basic salary + DA).

Typically, the EPFO allocates a majority of its assets in government securities, debt instruments and related investments. Around 5% to 15% of the portfolio is invested in equities — a high-risk asset class — in shares of companies with a market cap of over Rs 5,000 crore via the Nifty-based ETFs and Sensex-based ETFs. The shares are bought and sold in the same predefined proportion of the index according to their respective weightage. The fund manager has no role in deciding the inter se proportion of shares to be bought in Nifty / Sensex ETF. The dividends are reinvested in the scheme. That said, the Fund may also decide to distribute dividends to the investors.

For further diversification of investments, the EPFO is also allowed to invest up to 5% in asset-backed, trust-structured, and miscellaneous investments including the alternate investment funds (AIFs), real estate investment trusts (REITs), and units of infrastructure investment trusts (InvIT).

Last year, sometime in July 2022, as reported by the Economic Times there was a proposal to hike the investment limit in equities to 20% (from 15%) vetted and approved by the EPFO Advisory body, the Finance Audit and Investment Committee (FAIC). However, this proposal was not taken up in the EPFO’s Central Board of Trustees (CBT) meeting following the demand for more employees’ representatives in the EPFO trustees’ meeting.

This year, according to media reports, once again EPFO is looking to increase the equity investment limit. A proposal in this regard was approved by the EPFO’s CBT meeting in March 2023. The minutes read…

“It is proposed that proceeds of ETF investments may be re-invested in equity and related instruments which will increase the equity component to the permissible limit in the portfolio.”

The EPFO now would approach the finance ministry for clearance, and if approved, the EPF account holders/members’ exposure to equities, a risky asset class, could increase a bit. Trade unions may oppose increasing exposure to equities given their volatile nature.

However, if the undercurrents continue to remain favourable for Indian equities going forward and foreigners continue to exude confidence, respectable returns could be clocked on the equity component benefitting several EPF account holders/members at large.

Should you depend on EPF for your retirement needs?

The contributions made to the EPF account generate capital appreciation at low risk as a major portion is invested in government securities, debt instruments and related investments. For a long-term financial goal such as retirement, it is certainly a worthwhile avenue as the scheme also provides pension fund and deposit-linked insurance fund.

Moreover, EPF comes with a favourable tax E-E-E (Exempt-Exempt-Exempt) tax status, wherein the contributions made towards the PF account are eligible for deduction up to Rs 1.50 lakh under Section 80C of the Income Tax Act, 1961, interest earned on the EPF account is tax-free (if the employee’s contribution is up to Rs 2.5 lakh every financial year), and withdrawal of the PF balance, after a continuous service of 5 years, is exempt from income tax.

Also, when you need money for the education of children, wedding expenses, repayment of housing loan, house repair/interiors, construction of a house, medical treatment of self and family members, etc. there is reasonable flexibility on premature withdrawals.

To estimate the EPF corpus you need at the time of retirement, use PersonalFN’s online EPF Calculator.

But don’t solely depend on EPF to build a respectable corpus for retirement. Meaningful contributions need to be made in a variety of investment avenues such as the Public Provident FundSIP in Mutual Fundsgold, and bank deposits, consider inflation and in congruence with your risk profile, broader investment objective, and investment time horizon. This can prove to be a meaningful strategy for ensuring financial independence during the golden years of your life.

“As in all successful ventures, the foundation of a good retirement is planning.” – Earl Nightingale.

Happy Investing!

This article first appeared on PersonalFN here

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