Interest rate on non-government PF, superannuation and gratuity hiked

After the government hiked interest rates of small savings schemes, it has now announced that it has increased rates of non-government provident funds, superannuation, and gratuity. For quarter ended December 31, 2018, with effect from October 1, the interest rate earned on these schemes have been upped to 8 percent from 7.6 percent.

The finance ministry notified this revision in interest rates on the deposits under the Special Deposit Scheme (SDS) 1975, on October 4.

Increasing trend
In times like these when the government yield is showing an increasing trend, the interest rate for this quarter is higher than declared in the previous quarters of the calendar year. The interest rate for quarter ended March 31, 2018, the interest rate was 7.6 per cent, while for the June and September quarters it was kept constant at 7.6 percent.

Whom it helps
Several non-government, i.e., private trusts manage their own provident fund but are supposed to follow investment guidelines as set by the government. Even life insurance companies have superannuation plans and gratuity funds that any private sector employer may enrol in for the benefit of their employees the investment pattern for non-government provident funds, superannuation funds and gratuity funds.

The investments in Government Guaranteed Securities come with a separate maximum limit of not more than 10 percent. Increase in the SDS interest rate will help non-government provident, superannuation and gratuity funds will surely help them earn some extra returns. Employees or the beneficiaries of these funds can hope to reap its benefits in the long term.

What is SDS?
SDS was launched by the Central government on July 1, 1975. The purpose of the scheme was to provide better returns to non-government provident funds, superannuation and gratuity funds, surplus funds of the Life Insurance Corporation (LIC), and Employee's State Insurance Corporation, etc. When these institutions park funds in the SDS, the government pays the interest on the amount parked in SDS. In addition, the earnings of the non-government provident funds, superannuation and gratuity funds are through investing in government securities, mutual funds etc.

The Investment Pattern for Non-Government Provident Funds, Superannuation Funds and Gratuity Funds was last revised in 2015 and includes investments in new category of instruments, such as, index funds, exchange-traded funds, debt mutual funds, and asset-backed securities and instruments, such as, the infrastructure debt funds, real estate investment trusts, and infrastructure investment trusts.