After a handsome return of 12.1% in the first year of investing fresh inflows in equity exchange traded funds (ETFs), Employees’ Provident Fund Organisation (EPFO) has decided to invest 10% of its annual incremental deposits or an estimated R13,000 crore in the current fiscal in these funds.
The Labour Ministry raised the limit of investments by the Employees’ Provident Fund Organisation (EPFO) in the Exchange Traded Funds (ETFs) in 2016-17 to 10% of its investable deposits from 5% in the last fiscal. EPFO has already invested R1,500 crore in ETFs in the first half of the current fiscal and will invest about R11,500 crore in the remaining six months.
“We have already issued a notification raising the EPFO investment limit of ETFs to 10% from the current 5% of its investible deposits considering the good economic situation,” Labour Minister Bandaru Dattatreya told reporters at a press conference here.
In the year to July 31, 2016, the EPFO invested R7,468 crore of incremental deposits received in ETFs (in a 75:25 ratio between Nifty 50 and the Sensex) through various schemes, namely EPF, EPS, EDLI, PNG and SPF. The returns under various schemes have varied from 9.6% (PNG-Sensex) to 18.3% (SPF-Nifty), as the allocations have been in a phased manner.
With interest rates falling in recent months and the RBI likely to cut the policy rate over the course of next year, the retirement fund body is likely to lower the EPF interest rate for the current fiscal year from last year’s 8.8%. However, in order to maintain a uniform rate of assured returns to its subscribers, EPFO was needed to make its investment higher in the stock market.
Trade unions have been steadfastly opposed to the EPF corpus’ equity exposure. The issue was discussed twice in the meeting of the central board of trustees (CBT), EPFO’s highest-decision making body, but members had reservations against the ETF investments.
SBI Mutual Fund and UTI Mutual Fund would manage the funds for EPFO in the 75:25 ratio. EPFO manages a corpus of over R8.5 crore. It has over 4 crore active subscribers.