1. EPFO to hike exposure to equity markets? Decision likely on Saturday

EPFO to hike exposure to equity markets? Decision likely on Saturday

As per the investment pattern notified in 2015, the EPFO can invest up to 15% of its incremental deposits, estimated at Rs1.4 lakh crore per annum, in the stock market.

By: | New Delhi | Published: May 26, 2017 4:45 AM
Central Board of Trustees, CBT, Employees Provident Fund Organisation, EPFO, retirement fund The EPFO is keen on increasing its investments in the equity market since returns from such investments are better than the traditional investments in government securities.(PTI)

The Central Board of Trustees (CBT), the highest decision-making body of the Employees Provident Fund Organisation (EPFO), will take a call at its meeting on May 27 on increasing the retirement fund’s exposure to the equity market to 15% of incremental deposits from 10% at present.

Breaking away from its past practice of investing subscribers’ deposits mainly in the government securities and corporate bonds, the EPFO has since 2015-16 started investing in exchange traded funds (ETFs) to diversify its portfolio and optimise returns. As per the investment pattern notified in 2015, the EPFO can invest up to 15% of its incremental deposits, estimated at Rs1.4 lakh crore per annum, in the stock market.

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In the first year, it invested 5% and in the second year 10% of incremental deposits were invested. In the first two years, it has invested around Rs19,000 crore, which has yielded a little over 12% returns. The EPFO is keen on increasing its investments in the equity market since returns from such investments are better than the traditional investments in government securities.

However, continuous opposition from trade unions to “risky investments” has forced it to tread slowly.

“We will discuss the matter (of raising exposure in ETF) in the coming CBT. After discussion with stakeholders, the ministry will take a final decision,” a senior official at the labour ministry told FE.

The EPFO is under tremendous pressure to maximise returns from its investments. Depending on its return on investments,

the EPFO pays its subscribers interest on their deposits. Sensing that it would be left with only a meagre surplus amount, the retirement fund body pruned the interest rate on provident fund deposits for its subscribers to 8.65% for 2016-17, the lowest in four years. However, it still continues to be the most preferred fixed income instrument over all other debt instruments including the PPF, senior citizen savings scheme and bank deposits.

The finance ministry had initially objected to the EPFO paying even 8.65% interest for 2016-17. The finance ministry’s apprehensions were not unfounded since EPFO’s income, projected to be Rs39,084 crore, has been shrinking in sync with the falling interest rate regime.

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