All private PF trusts in position to offer 9.5% returns: EPFO study

Companies that manage provident fund savings of their employees, or exempt trusts, are in position to match the 9.5% return offered by the government-run Employees Provident Fund Organisation (EPFO).

“They (exempt trusts) have enough surplus to not only match the 9.5% returns declared by us but, in fact, give out 8-9 % higher returns,” said an official of the EPFO, adding that the observation was based on a study of four big funds.

The EPFO has declared a 9.5% return for 2010-11 on the corpus managed by it after it found Rs 1,731 crore surplus when it applied the accrual basis of accounting to the interest suspense account right from 1952.

It has been paying a 8.5% return since 2005-06 and was expected to declare the same E PF rate in the current year as well.

In cash basis accounting, revenues are recorded when cash is actually received and expenses are recorded when they are actually paid, whereas in accrual basis accounting, revenue and expenses are recorded when they occur irrespective of when they are received or paid.

However, this extra return declared by the EPFO could create problems for companies that manage provident fund savings of employees in-house , instead of parking them with the EPFO, through a trust.

Such exempt trusts, numbering over 3,000, have to match the return offered by the EPFO. Since the higher 9.5% return offered by EPFO was because of the discovered money , there is a concern that exempt funds will not be able to match the returns.

According to industry body Ficci, private trusts find it difficult to earn more than 8% return on the investments made as there are restrictions on where the PF money could be placed. But the EPFO does not buy the argument.

The private firms have been investing in the same government securities, declaring the same interest rates, and maintaining accounts using the same cash-based system. It is only logical to assume that the excess funds discovered in the PFO’s interest suspense account would also be there in their accounts, the official said.

source;The Economic Times