Will EPFO investments beyond Sensex, Nifty put your money at risk? What experts say

By: and |
Updated: June 27, 2018 9:06:07 AM

Even as the Employees’ Provident Fund Organisation (EPFO) is looking to broaden its equity portfolio beyond the Nifty 50 and Sensex 30 stocks, top market voices say that the move to earn higher returns could come at a higher risk.

EPFO investments moving beyond the Sensex and Nifty would give a lot of power to the fund managers to decide on the stocks, which could be misused, observed VK Sharma of HDFC Securities.

Even as the Employees’ Provident Fund Organisation (EPFO) is looking to broaden its equity portfolio beyond the Nifty 50 and Sensex 30 stocks, top market voices say that investment beyond the index will strengthen the stability of the stock market. “EPFO investment is long term. So investment by EPFO beyond index will strengthen the stability of stock market,” Alok Alok Singh, CIO, BOI-AXA Investment Managers told FE Online.

According to media reports, three indices BSE MidCap Select Index, Sensex Next 50 and Nifty Next 50 are being considered for diversification by the EPFO. “This move will help the EPFO in maximize its return as historically the midcap and small cap have generated more return than the large cap,” Alok Singh noted.

However, the move may also hurt the lay investor, according to V K Sharma – Head PCG & Capital Markets Strategy Group, HDFC Securities. “While the fund managers would have a more number of options to choose from , it would be bad for the lay investor. Money going into the Nifty or Sensex will definitely give good returns over the longer term. That can’t be said of the returns (now),” VK Sharma told FE Online, adding that following the change, the returns can be higher or lower than the markets.

Further, EPFO investments moving beyond the Sensex and Nifty would give a lot of power to the fund managers to decide on the stocks, which could be misused, observed VK Sharma. Further, VK Sharma observed that while the move can potentially increase returns for EPFO investments, the risks will also increase.

“The small and midcap stock are generally volatile because of their small base. The allocation of such stocks in the portfolio increases the volatility in the portfolio. But if one remain invested in mid and small cap stocks for a  long period than the volatile get smoothened out,” Alok Singh of BOI-AXA said in response to whether the risk-return trade-off of moving beoynd Sensex and Nifty to BSE MidCap Select Index, Sensex Next 50 and Nifty Next 50 will prove to be worthwhile.

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