Government hikes interest rate for general provident fund

RBI might have disappointed the market by denying an interest rate hike, but government seems to be in mood to entice investors by raising interest rates on non-government provident funds superannuation and gratuity funds.

The interest rate has been raised from the existing 7.6 per cent to 8 per cent for October to December quarter, through a notification by the Ministry of Finance. The interest rates for Special Deposit Scheme (SDS) where last revised in 2015. Provident funds of non-government organizations including private trusts, superannuation funds of life insurance companies, gratuity funds of private employers park their funds in SDS.

On the other hand, these general provident funds earn by investing in government securities and mutual funds. In 2015, government had also made it mandatory for non-government PFs to investment at least 5 per cent in equity or equity-related instruments and has allowed up to 15 per cent investment in these assets.

This hike will help private sector employees who have enrolled for these provident funds gains extra returns. Many private companies manage their own provident funds through private trusts for ease of management and better returns.