The Employees Provident Fund Organisation (EPFO) has decided to let UTI Mutal Fund manage 10% of its fresh investment in the stock market for the 12-month period starting with July 2016.
The Employees Provident Fund Organisation (EPFO) has decided to let UTI Mutal Fund manage 10% of its fresh investment in the stock market for the 12-month period starting with July 2016. SBI Mutual Fund will continue to manage the lion’s share of the EPFO’s ETF corpus, a source said.
Since the beginning of its foray into the stock market from August last year, the retirement fund body has invested R7,000 crore till June, which has yielded 7.45% returns. Exchange Traded Funds, or ETFs, are funds that invest in various securities and are traded on stock exchanges.
SBI MF’s initial one-year term with the EPFO had ended in March 2016, but it was given a three-year extension. Trying to ignite some amount of competition for better returns, EPFO meanwhile invited request for proposals (RFPs) for the selection of asset management companies (AMCs) for managing its investment in ETFs in June this year. However, it terminated the advertisement later.
EPFO found that, as on May 2016, SBI MF and UTI MF have the lowest expense ratio among AMCs at 0.07% for Sensex ETF. However, for the Nifty ETF, the expense ratio of the two (at 0.07%) is slightly higher than HDFC MF and ICICI Prudential MF’s expense ratio of 0.05%. Expense ratio is a measure of what it costs an investment company to operate in a mutual fund.
“Considering the fact that ETFs as an investment vehicle are relatively nascent in the Indian market, it would be prudent to invest only with AMCs which have majority ownership under public sector rather than expanding the investment universe to all other AMCs as was decided by the Central Board when for the first time investment in the ETF was allowed,” said the source.
The Finance Investment and Audit Committee (FIAC) of the Central
Board of Trustees (CBT), EPFO’s apex decision-making body, had in its
June 27 meeting approved the investment proposal and it was placed in the July 8 meeting of the CBT, where it was approved.
State Bank of India has the majority 63% stake in SBI MF while the remaining is with Amundi India Holding. SBI, LIC, Bank of Baroda and Bank of Punjab have 18.29% stake each in UTI MF while the rest is owned by T Rowe Price.
EPFO has in its first year invested 5% of its incremental deposits in the stock market, though it has the permission to raise it up to 15%. Labour minister Bandaru Dattatreya recently hinted that EPFO’s exposure in the stock market could be raised and a decision in this regard would be taken soon.