Buoyed by a handsome return of 12.1% in the first year of investing fresh inflows in equity exchange traded funds (ETFs), Employees’ Provident Fund Organisation (EPFO) has decided to invest 10% of its annual incremental deposits or an...
Buoyed by a handsome return of 12.1% in the first year of investing fresh inflows in equity exchange traded funds (ETFs), Employees’ Provident Fund Organisation (EPFO) has decided to invest 10% of its annual incremental deposits or an estimated R13,000 crore in the current fiscal in these funds.
As per the notified investment pattern, the retirement fund body can invest up to 15% of its incremental deposits in the stock market. However, the trade unions’ continuous opposition against investing in the stock market, perhaps made it trudge on the cautious path.
Though the exact returns from government securities and corporate bonds during the period could not be immediately ascertained, sources had earlier said these may have been below 10%. Of the EPFO’s corpus, 60% is invested in government securities (G-Secs) and 35% in corporate bonds.
“We have already issued a notification raising the EPFO investment limit of ETFs to 10% from the current 5% of its investible deposits,” labour minister Bandaru Dattatreya said here, adding that EPFO has already invested R1,500 crore in ETFs in the first half of the current fiscal and will invest about R11,500 crore in the remaining six months.
“We have decided to raise it keeping the good economic situation, ground conditions and how social security funds invest globally. We are custodians of workers money and our responsibility is to see they get good returns,” he added.
In the year to July 31, 2016, the EPFO invested R7,468 crore of incremental deposits received in ETFs (in a 75:25 ratio between Nifty 50 and the Sensex) through various schemes, namely EPF, EPS, EDLI, PNG and SPF. The returns under various schemes have varied from 9.6% (PNG-Sensex) to 18.3% (SPF-Nifty), as the allocations have been in a phased manner.
With interest rates falling in recent months and the RBI likely to cut the policy rate over the course of next year, the retirement fund body is likely to lower the EPF interest rate for the current fiscal year from last year’s 8.8%. However, in order to maintain a uniform rate of assured returns to its subscribers, EPFO was needed to make its investment higher in the stock market.
Trade unions have been steadfastly opposed to the EPF corpus’ equity exposure. The issue was discussed twice in the meeting of the central board of trustees (CBT), EPFO’s highest-decision making body, but members had reservations against the ETF investments.
SBI Mutual Fund and UTI Mutual Fund would manage the funds for EPFO in the 75:25 ratio. EPFO manages a corpus of over R8.5 crore. It has over 4 crore active subscribers.