Your savings may take a hit as a cut in EPF, PPF rates is likely

Be prepared to take a blow on your savings plan as the government is planning to cut interest rates on Employees' Provident Fund (EPF), Public Provident Fund (PPF) and Senior Citizens' Saving Scheme.

Due to a sharp decline in bond yields in last six months, it is likely that the government will cut EPF rate and it won’t stand at 8.8%.

The bond yields have reduced 60-70 basis points since the last rate cut in March. A basis point is 0.01 percentage point.

ET reported that as per 25 finance professionals, 84% expected EPF rate to be lower this year.

Experts say the current equity allocation in EPF is too small to make a meaningful difference. "Equity assets account for barely 1 per cent of the total EPF corpus so it will take some years before they show results," Manoj Nagpal, CEO of Outlook Asia Capital, told ET.

Meanwhile, if the government decides on cutting the rates, it will trigger a protest.

The Bharatiya Mazdoor Sangh (BMS) opposed the move. "If interest rates have fallen, we will give a lower return of say 8.25 per cent this year. But at least it will not fall to 5 per cent or 3 per cent. Low-income earners cannot afford to risk their retirement savings in equities," Virjesh Upadhyay, national general secretary of BMS and a CBT member, told ET.

(Image: Thinkstock)