Hurdles in way of higher EPF exposure to stocks through ETFs

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Published: July 1, 2016 3:58:11 PM

Central trade unions are all set to oppose the proposal to raise investments in ETFs from the current 5 per cent of the corpus when the Central Board of Trustees (CBT) of the Employees' Provident Fund Organisation (EPFO) meets on July 7.

Hurdles in way of higher EPF exposure to stocks through ETFs as central unions oppose moveCentral trade unions are all set to oppose the proposal to raise investments in ETFs from the current 5 per cent of the corpus when the Central Board of Trustees (CBT) of the Employees’ Provident Fund Organisation (EPFO) meets on July 7. (Photo: Reuters)

There could be hurdles in the way of increasing allocation from employees’ provident fund (EPF) corpus to equities through exchange traded funds (ETFs) as is being proposed.

Central trade unions are all set to oppose the proposal to raise investments in ETFs from the current 5 per cent of the corpus when the Central Board of Trustees (CBT) of the Employees’ Provident Fund Organisation (EPFO) meets on July 7.

Two CBDT members told FeMoney that the proposal to increase exposure to ETF is likely to be opposed by all central trade unions.

“We have been against investment of of EPF money into equities all through. We will oppose the proposal when it comes up before CBT,” D L Sachdeva, General Secretary, All India Trade Union Congress (AITUC) told FeMoney.

Labour Minister Bandaru Dattatreys had recently said that the CBT will meet on July 7 to consider increasing investment in EPF to ETFs. At present, 5 per cent of EPF corpus is invested in ETFs by which the investments attempt to derive higher returns linked to equities. EPFO investment norms provide a leeway to invest upto 15 per cent of the corpus in equities. ETFs invest in various securities and are traded on stock exchanges.

Bharatiya Mazdoor Sangh, closely associated with the ruling Bharatiya Janata Party, is also opposed to the move to increase ETF allocation. “We are going to oppose the move to increase EPF exposure to exchange traded funds. This could lead to volatilty on pension corpus,” Vrijesh Upadhyay, National Secretary, BMS, said.

Upadhyay pointed out that they had also opposed the 5 per cent exposure to equities but had been outvoted at the CBT meeting.

As on March 31, 2016, EPFO’s investment in ETF stood at Rs 6,577 crore which grew to Rs 6,601 crore, a 0.37 per cent increase. On April 30, 2016, the amount invested was Rs 6,674 crore which grew to Rs 6,786 crore, up 1.68 per cent.

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