EPFO avoids private route for ETF corpus management

As of now, only SBI Mutual Fund and UTI Mutual Fund eligible bodies to manage the corpus

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The Employees’ Provident Fund Organisation (EPFO) might increase the proportion of its investment in exchange-traded funds (ETFs). But, it is unlikely to go to any private asset management company anytime soon to manage its investment.

This leaves only SBI Mutual Fund and UTI Mutual Fund as the eligible bodies to manage the corpus of the retirement fund in ETFs.

At present, the two manage the corpus — SBI, 90 per cent; UTI, 10 per cent.  

“ETF as an investment vehicle is fairly nascent in the Indian market and it would be prudent to invest only with asset management companies, with the majority ownership in the public sector,” said V P Joy, central provident fund commissioner.

When the EPFO had initially started investing in ETFs, it had selected SBI Mutual Fund. To get the business, SBI MF slashed its fees or expense ratio for Nifty and Sensex to just 0.07 per cent from 0.36 per cent.

But according to an official, the Central Board of Trustees was of the opinion that new fund houses should be given a chance for the sake of competition.

Consequently, a request for proposal was floated in June this year.

According to EPFO sources, top private asset managers, including ICICI Prudential, Reliance Mutual Fund, HDFC Mutual Fund and Kotak Mahindra Mutual Fund, bid for it.  

“It’s lucrative, as ETFs are not popular among individual investors, so fund managers want such large institutional funds, but none of the AMCs, except SBI, have a sizeable corpus either in the Nifty 50 or Sensex,” the EPFO official said.

According to the official, even for SBI, whose corpus is around Rs 9,000 crore in the two ETFs, Rs 7000 crore belongs to EPFO.

Labour Minister Bandaru Dattatreya recently said UTI had been brought in for a 12-month period from July 2016 to increase competition.

AMCs are normally selected through a competitive bidding process based on their expense ratio. The fund quoting the lowest expense ratio wins the bid. The expense ratio is the cost per unit incurred to operate a scheme and is charged to the overall assets of the scheme.

EPFO had started investing up to five per cent of its investible deposits in ETFs in August last year.

It had put in around Rs 7,468 crore in the ETFs till end-July and has attained a return of 7.45 per cent. Of the total amount, 75 per cent is being invested in Nifty and the remaining 25 per cent in BSE

It plans to invest another about Rs 6,000 crore in ETFs in the current financial year.