Equity, debt, PMS or AIFs: How does EPFO invest your money and pay guaranteed interest every year? Experts explain
Every month, both employees and employers contribute to the Employees' Provident Fund (EPF), creating a retirement corpus for subscribers. The Employees' Provident Fund Organisation (EPFO) invests these contributions across various financial instruments, including debt and equity.
Despite these market-linked investments, EPFO declares an annual interest rate on EPF deposits, which is credited to subscribers' accounts.
But how does EPFO manage and invest your money, and how does it declare a fixed interest rate despite market fluctuations? Here's what experts have to say on this.
Vedant Gupte, Co-Founder and CEO of investment platform Trackk, said, “Once the money arrives, EPFO doesn't decide what to buy on its own. The government notifies an investment pattern, and EPFO works within it.”
Manish P. Hingar, Chartered Accountant, Founder and Chief Executive Officer of Fintoo, said that under the Finance Ministry's investment pattern for fresh inflows, EPFO invests 45–50% in government securities, 35–45% in PSU and corporate bonds, up to 5% in money-market instruments, 5–15% in equity and up to 5% in REITs, InvITs and similar instruments.
Rashid Ali, Co-founder of Cashlo App (MJ Digital Services), said EPFO investments are primarily in ETFs which invest in the Nifty 50, Sensex, CPSE and Bharat 22.
Piyush Jhunjhunwala, Founder and CEO of Stockify, added that EPFO has appointed professional portfolio managers to manage its corpus within the prescribed guidelines and investment limits. However, this should not be confused with EPFO investing through Portfolio Management Services (PMS) in equities.
Sheersham Gupta, Director, Rupeezy, said EPFO's current investment framework is designed to balance capital preservation, predictable returns and long-term wealth creation.
Gupte said, “You get the declared rate, nothing more and nothing less. The government guarantees EPF deposits.”
EPFO makes this arrangement work through a financial cushion. In years when investments perform well, it builds a surplus. During weaker market conditions, it can avoid selling investments at unfavourable prices.
For instance, when equity markets fell sharply in FY20, EPFO maintained the declared interest rate by choosing not to sell its ETFs during the March market crash. Subscribers did not directly bear the market decline in their EPF accounts, he explained.
Ali said the EPFO's Central Board of Trustees reviews its investment income, accumulated surplus and liabilities every year. Based on this assessment, it recommends an annual interest rate, which is subject to the government's approval.
The overall investment portfolio generates income through interest, dividends and capital gains, alongside potential market losses. These returns, together with the fund’s liabilities and financial position, influence the rate that can sustainably be declared, Gupta added.
Jhunjhunwala said EPFO follows a pooled investment structure; hence, members do not directly participate in the returns of each investment made. Instead, they receive the annual interest rate declared by EPFO. For FY 2025-26, EPFO has declared an interest rate of 8.25%.
According to media reports, there is a proposal to allocate up to 3% of EPFO's fresh annual accretions to Category I and Category II Alternative Investment Funds (AIFs). Separately, in September, the Department for Promotion of Industry and Internal Trade (DPIIT) wrote to EPFO seeking its participation in the recently launched Startup India Fund of Funds 2.0.
Jhunjhunwala said Category I AIFs typically invest in startups, infrastructure and venture capital, while Category II AIFs invest in private equity, private debt and other alternative investments.
“DPIIT's proposal to get EPFO into the Startup India Fund of Funds 2.0 will give it indirect exposure to new-age businesses through professionally managed funds. This means that EPFO will be able to access growth opportunities through long-term investments other than listed equities and traditional debt instruments,” he added.
Hingar said, “Up to 3% of fresh inflows could go to Category I and II AIFs, which back startups, infrastructure and private equity, initially through NIIF and SIDBI's Fund of Funds 2.0.”
He added that the proposed safeguards include a minimum fund size of ₹100 crore and exposure limits. While these investments are relatively illiquid and carry higher risks, their proposed small allocation means they should have a limited impact on subscribers' interest rates.
Sheetal Goel
Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates. She focuses on simplifying complex financial concepts and presenting them in a clear, reader-friendly manner, thereby helping audiences better understand investment trends, personal finance, and market developments. Her writing focuses on making finance more accessible to everyday readers while maintaining clarity, accuracy, and relevance. <br><br> She holds a degree in Economics (Hons.) along with an MBA in Finance, which has helped her develop a strong foundation in financial analysis, market understanding, and business reporting. Before joining journalism, she worked with finance and broking firms, where she closely followed market developments, investment strategies, and evolving industry trends. This practical exposure strengthened her understanding of financial markets. She has also written content across multiple formats and platforms, including YouTube, LinkedIn, and Instagram. <br><br> Over time, she has developed expertise in covering market-linked stories, investor-focused topics, and regulatory updates in a simplified yet informative style. She also enjoys reading and listening to Hindi poetry, reflecting her appreciation for literature and creative expression beyond the world of markets and numbers.
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