How Epfo Makes Money?: A Ultimate Guide

How Epfo Makes Money

How Epfo Makes Money? – As per our readers’ demand and comments, we are publishing this article. If you want to know about How Epfo Makes Money?, continue reading and learn more.

How Epfo Makes Money?

The Employees’ Provident Fund Organisation (EPFO) makes money by investing the contributions made by employers and employees. The EPFO is a statutory body under the Ministry of Labour and Employment, Government of India. It was established in 1952 to provide social security to employees in the organized sector.

How Epfo Makes Money

The EPFO collects 12% of the basic salary and dearness allowance of each employee as contribution. The employer also contributes an equal amount. The total contribution is then invested by the EPFO in a variety of instruments, such as government securities, corporate bonds, and equities.

The interest earned on these investments is used to pay the members’ retirement benefits, such as pension and lump sum amount. The EPFO also uses a portion of the interest to meet its administrative expenses.

The EPFO’s investment strategy is guided by the following principles:

  • Safety of investment: The EPFO’s investments are primarily made in safe and liquid instruments.
  • Diversification: The EPFO’s investments are diversified across different asset classes to reduce risk.
  • Returns: The EPFO aims to generate a reasonable return on its investments to meet the retirement benefits of its members.

The EPFO has a long history of generating healthy returns on its investments. In the financial year 2022-23, the EPFO earned an interest of 8.1% on its investments. This is higher than the interest rate offered by most other savings schemes.

The EPFO is a well-managed organization with a strong track record of financial performance. It is a reliable source of retirement income for millions of employees in India.

Here are some of the key investment areas of EPFO:

  • Government securities: The EPFO invests a majority of its funds in government securities, such as treasury bills, government bonds, and state development loans. These securities are considered to be safe and liquid, and they offer a stable return.
  • Corporate bonds: The EPFO also invests a small portion of its funds in corporate bonds. These bonds are issued by companies, and they offer a higher interest rate than government securities. However, they are also riskier.
  • Equities: The EPFO has been increasing its investment in equities in recent years. Equities offer the potential for higher returns, but they are also more risky. The EPFO’s investment in equities is limited to 15% of its total corpus.
  • Other investments: The EPFO also invests in a small amount of other assets, such as gold and money market instruments.

The EPFO’s investment strategy is reviewed regularly by a committee of experts. The committee takes into account factors such as the current interest rate environment, the risk appetite of the EPFO’s members, and the need to generate a reasonable return on investments.

Also Read: PF Withdrawal Rules After Resignation: A Ultimate Guide

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