EPFO on Thursday announced it will invest up to Rs 5,000 crore – 5% of its incremental deposits – in equity markets through exchange traded funds.
The Employees’ Provident Fund Organisation (EPFO), India’s state-run pension fund with a retirement corpus of Rs 8.5 lakh crore, has hit the stock market on Thursday. Initially, the proposal to invest EPFO funds in the stock market witnessed stiff opposition from trade unions and was therefore pending for several years.
Investors had welcomed the pension fund’s decision this year to begin buying stocks in 2015/16, hoping it would become, like state-run Life Insurance Corp of India, a steady source of funds especially in times of market turbulence, according to Reuters.
EPFO invests in stock markets: 10 key points you must know
1. EPFO plans to invest Rs 5,000 crore this fiscal year.
2. The stock markets will get a push as EPFO’s entry would mean quality long-term money into equities.
3. Labour minister said EPFO subscribers would get more than the 8.7% return they get now by way of annual interest.
4. The money will be invested through exchange traded funds (ETFs) and the limit for the current year will be 5 per cent of the incremental deposits.
5. EPFO funds will be invested through SBI Nifty exchange-traded fund (ETF) and SBI Sensex ETF managed by SBI Mutual Fund.
6. Close to 75 per cent of the funds will be invested in NSE ETF and the balance 25 per cent in BSE ETF. The investment ratio may alter and EPFO may also choose to invest in the government’s CPSE ETF.
7. There is scope of further increasing EPFO’s corpus to maximum 15%
8. Experts say EPFO entry into stock markets would provide better balance at the time of foreign fund outflows and deepen the ETF markets.
9. Union Labour Secretary Shankar Aggarwal said the EPFO investment into the stock market can go up to 15 per cent of the incremental deposit every year. As the EPFO gets around Rs 1,00,000-1,20,000 crore as incremental deposits every year, ETF investment can go up to Rs 15,000-20,000 crore.
10. “Many citizens world over have been able to obtain better returns by investing through stock markets. Using ETF as the vehicle by EPFO for such investment has made the entire process transparent,” BSE chief Ashish Kumar Chauhan said.