Retirement funds like Employees’ Provident Fund (EPF) should be allowed to enhance their asset allocation to equity from the current level of 5-15% of the incremental deposits as this would help in realising the country’s huge demographic advantage, a joint study by Assocham and Crisil has said.
“At 5%, overall exposure to equity could barely reach 5% in 20 years, and even if allocation was increased to 15%, it may take three more years to cross the 5% overall mark,” the study titled ‘for greater good’ said.
Stating that the global exposure level is much higher – in OECD countries, for instance, the average is near 30%, the study said the opportunity is much bigger for exempt trusts since they have greater flexibility to invest compared with Employees’ Provident Fund Organisation (EPFO).
“There is no denying that equity investments are fraught with risks and require relevant infrastructure and risk management expertise, which these bodies may not possess. But the risks tend to level out over the long term,” it added.
Suggesting for appointing professional fund managers to take apt investment decisions for the retirement fund body, it said they can consider outsourcing this risk management function to independent third-party investment analytics firms which have no conflict of
The study highlighted that as per a global analysis of investments, even the non-OECD countries are putting their demographic advantage to better use by investing in equities.
In India, however, pension assets are predominantly invested in debt. According to an analysis, equity has the ability to generate stable positive returns over the long term, evidently as the S&P BSE Sensex has not given negative return in any 15-year period, and 93% of the times given returns which are more than 10%.