🔪 Interest rates slashed & EPF withdrawals.

Angelo Soares
Angelo Soares

Orowealth Weekend Reads: April 5, 2020


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In bad news for investors, the central government sharply reduced interest rates on small savings schemes for the first quarter of FY 20-21 (April to June). The action was drastic with rates being slashed by 70 to 140 basis points (bps). The savings deposit was the only one spared, with interest rate remaining at 4%. The most affected are the post office time deposits. Interest rates on 1 year, 2 year, and 3 years fixed deposits and 5-year recurring deposits have been reduced by a uniform 1.4%. So, a 3-year deposit that was yielding 6.9% would now yield just 5.5%. Interest rates on popular products like 5 years Senior Citizen Savings Scheme and Public Provident Fund have been reduced by 120 bps and 80 bps respectively to 7.4% and 7.1% respectively. Kisan Vikas Patra would now yield just 6.9%, down from 7.6% before and Sukanya Samriddhi Yojana would yield 7.6% as compared to 8.4% earlier. Interest rates on these schemes are reviewed every quarter by the government and are based on the formula provided by the Shyamala Gopinath Committee.

This sharp decline in rates comes as a shock, especially to senior citizens, who depend on savings schemes for regular income.

The Finance Ministry has taken several steps to alleviate the financial stress on underprivileged individuals and migrant workers. One of them is amending the Employee Provident Fund Organisation (EPFO) regulation which allows employees to withdraw 75% of their corpus as non-refundable advance or three months’ basic salary, whichever is less. Any member of the EPF Scheme, 1952 with a UAN (Universal Account Number) working in a factory or establishment can make use of this advance. Members do not require any certificates or documents for availing this benefit. This claim can be made online if a member’s UAN has been validated and linked with his mobile number. Instructions to make this advance claim can be found at www.epfindia.gov.in, under the tab “COVID-19” on top right-hand corner. Claims can also be made via the UMANG mobile app.

Let’s look at an illustration. Let the balance in an EPF member’s account be Rs 1,00,000 and his monthly wage be Rs 30,000. 75% of the balance is Rs 75,000 and three months’ wages are Rs 90,000. So this member will be eligible to withdraw Rs 75,000 which is the lesser of the two amounts.


Whether I should pay my EMI or avail moratorium?
RBI recently announced a deferment option to financial institutions for 3months to fight the challenges arising due to the pandemic (Covid 19). This announcement is beneficial for borrowers facing any cashflow mismatch to service their loans. While the step sounds beneficial for many borrowers, the details need to be understood before going ahead.

Long Term Mutual Funds
With the change in interest rates – as they climb down, the investments have been flowing out of debt-based instruments and equity is becoming the preferred instrument.

“Behavior that’s admired is the path to power among people everywhere.”
– Seamus Heaney (an Irish poet and playwright)
Chosen by Manish – Orowealth.

Angelo Soares
Angelo Soares
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