Pvt Cos have to match govt promise of 9.5% EPF return

NEW DELHI: Private companies will have to pay from their pockets to give 9.5 per cent return on the Employees Provident Fund (EPF) from their trusts, to match the promise made by the government. Total shortfall, while giving the payout at 9.5 per cent , is estimated at Rs 500 crore.
According to a government source, no private trust would be allowed to continue with a below 9.5 per cent return, even if the company''s profit is only good enough to pay a return of, per se, 8.5 per cent .But, the company is not allowed to eat into its principal to give the 9.5 per cent return.In this scenario, the source said, the private company will have to meet the shortfall from its own kitty.
In case of unexempt category of employees'' provident fund, where the corpus is managed directly by the government department — Employees Provident Fund Organisation, (EPFO), the shortfall will be met by the government.
The source added that an increase in the interest rate on special deposit scheme (SDS) is the only way to meet this liability.
The total corpus of Employees Provident Fund is Rs 1.22 lakh crore. Out of this, the size of the unexempt fund is Rs 72,000 crore as on March 2004.
The size of exempt fund, which is managed by private companies, is around Rs 52,000 crore.
Around 70 per cent of the corpus is invested in SDS, which earns 8 per cent rate of interest. Therefore, total earnings of the fund from investment in SDS is Rs 4,032 crore. To give, 9.5 per cent return, the fund must earn Rs 6,840 crore.
This means, the remaining 30 per cent , which is Rs 21,600 crore, should earn Rs 2,808 crore, to give the return of 9.5 per cent.
For this, the investment in other schemes should earn a return of 13 per cent in 2004-05. As the EPF invests in government securities and bonds of companies, the average return is low at around 8.7 per cent . The total corpus of Rs 72,000 crore is expected to earn a return of Rs 5,919.42 crore in 2004-05.
According to a source, the biggest challenge before an EPF trust manager is to find a good investment scheme to get a return of around 9 per cent. In fact, many of these funds have invested in the state governments'' securities to earn better returns. But, most of the times, they lost money because of the delayed payments from the state governments.
EPF is also facing the problem of defaulting companies, which collected money and misappropriated it. According to available data, under the unexempt category, the total defaulted amount is Rs 1,085 crore as on March 2003. In the exempt category, the amount is Rs 613 crore.