The Employees’ Provident Fund Organisation (EPFO) fetched a handsome return of 12.1% in the first year of investing fresh inflows in equity exchange traded funds (ETFs), giving ammunition to its central board of trustees to raise exposure in equities from 5% now to 10% or even 15%, the upper limit notified by the labour ministry in April last year. Though the exact returns from government securities and corporate bonds during the period could not be immediately ascertained, official sources told FE that these may have been below 10%. Of the EPFO’s corpus, 60% is invested in government securities (G-Secs) and and 35% in corporate bonds.
In the year to July 31, 2016, the EPFO invested R7,468 crore of incremental deposits received in ETFs (in a 75:15 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. The EPFO is now investing its fresh inflows in ETFs commensurately from each fund and on an everyday basis, so there will be uniformity in returns obtained under various schemes.
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%.
The National Pension System (NPS) corpus earns returns higher than the EPFO does from its investments, thanks mainly to the fund managers. NPS funds invested through SBI-PF, for instance, fetched 13.82% from equity investments for the year to August 30, 2016. This strengthens the case for more professionalism in the EPFO’s investments, even as it needed to raise the equity investments to higher levels, analysts said.
Trade unions have been steadfastly opposed to the EPF corpus’ equity exposure and are in no mood to change their stance on news that the experiment with ETF investments has yielded good results.