India’s pension fund will invest R410 cr each month during FY16 through ETF route
As India’s retirement fund body gets ready to invest in the stock markets starting Thursday, the Street is optimistic and believes the institution’s entry will have multiple benefits for the Indian equity markets.
The government on Thursday will officially announce the Employment Provident Fund Organisation (EPFO)-investment into equity markets through an exchange traded fund (ETF). The fund will be managed by SBI AMC. In the initial stages, the EPFO will invest about R410 crore or 5% of its incremental deposits each month during fiscal 2016, making EPFO the second largest domestic institutional investor after LIC.
Experts opined that EPFO’s entry will bring quality long-term money into Indian equities. More importantly, it will bring better balance to equity markets at the time of foreign fund outflows.
Milind Barve, MD, HDFC AMC views the entry of EPFO as a great opportunity for the markets as it would get access to funds of close to R1 lakh crore per year based on 10-15% investment of its corpus.
“It is potentially a great opportunity… Although initially the money would come through the ETF route because actively maintained funds are not yet permitted to manage EPFO money, it will increase the amount of funds allocated to equity markets through mutual funds and most importantly, it will be high quality investment as it will come for the long term,” Barve told FE.
The equity ETFs market in India is at a nascent stage with total assets of other ETFs at R7,322 crore as on June 2015, data from the Association of Mutual Funds of India (Amfi) showed.
Nilesh Shah, MD, Kotak AMC foresees a ‘tsunami’ coming into financial markets from domestic investors, anticipating about R2 lakh crore of money over a long-term period. “The DII flows will consolidate further in the coming months as pensions funds arrive in equity markets. The pension funds have not invested even a single rupee into equities, and now they have been allowed to invest anywhere between 5% to 15%. Globally, pension funds are the biggest owners of equity markets. It will benefit both the markets and the pensioners,” Shah told FE.
The Central Board of Trustees’ headed by the labour minister Bandaru Dattatreya had decided in March to start investments in stock market. However, it was assured to the trustees in the meeting that being cautious about the volatile nature of stock market and with no prior experience of such investments, EPFO will start with investing in ETF during the current fiscal.
In the present scenario, the EPFO has received an average monthly incremental deposits of R8,200 crore during this financial year so far. By the end of twelve months of investing, EPFO will invest close to R5,000 crore in equity ETFs out of its total annual investible fund of R6.5 lakh crore. An ETF is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.