The first investment would be via SBI MF’s two index-linked ETFs — ETF Nifty and ETF Sensex — in the ratio of 75% and 25%
India’s pension fund on Thursday announced it will invest up to Rs 5,000 crore – 5% of its incremental deposits – in equity markets through exchange traded funds (ETFs), with a scope of further increasing its corpus to maximum 15%.
The first investment, announced by labour minister Bandaru Dattatreya, would be made through SBI Mutual Fund’s two index-linked ETFs – ETF Nifty and ETF Sensex – in the ratio of 75% and 25%, respectively. The investment ratio may alter and EPFO may also choose to invest in the government’s CPSE ETF.
“We will review the situation to decide whether we should increase it to 15% next year. We expect that the return be given to 4.67 crore subscribers of EPFO, which started investing 5% of its incremental fund of Rs 1 lakh crore to be more than the existing return of 8.75%,” the minister told reporters.
The event was also attended by Sebi’s whole-time member S Raman, SBI chairperson Arundhati Bhattacharya, BSE chief Ashish Kumar Chauhan and the Central PF commissioner KK Jalan.
Raman said EPFO investment into equities is a significant move and progressing as per global standards. BSE’s Chauhan said that investment of pension funds in stock markets is an internationally accepted practice and citizens world over have got better returns from such investments.
“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,” Chauhan added.
Market experts FE spoke to also remained optimistic and believed EPFO investments would have multiple benefits for Indian equity markets. It would bring quality long-term money into Indian equities, provide better balance at the time of foreign fund outflows, and deepen the ETF markets.
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.
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.
The Central Board of Trustees’ headed by 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 would start with investing in ETF during the current fiscal.
EPFO’s equity play
* Scope of further increasing EPFO’s corpus to maximum 15%
* Labour minister said EPFO subscribers would get more than the 8.7% return they get now by way of annual interest
* Experts say EPFO brings quality long-term money into equities