EPFO draws up plan to invest in stock markets

To begin by investing 5% in exchange-trade funds in coming weeks

The Employees Provident Fund Organisation (EPFO) will invest a part of its corpus in exchange-traded funds issued by SBI Mutual Fund.

This decision was taken at a meeting of the finance, investment and audit committee of the EPFO last week.

EPFO has decided to invest five per cent of its incremental corpus of Rs 1,00,000 crore in ETFs in 2015-16. EPFO will start investing in SBI-Sensex ETF, SBI-ETF Nifty Junior, SBI-ETF Banking and SBI-ETF BSE 100. The mutual fund has also applied to the Securities and Exchange Board of India for a Nifty-based ETF.

EPFO will pool all its investment meant for the month on a single day, when the market falls by over four per cent. When the market falls by over two per cent, the entire sum meant for a week will be invested. These plans will be reviewed every financial year.

"We have designed a risk-free investment plan as far as ETFs are concerned and we have a long-term perspective," EPFO chief KK Jalan said in an interview to Business Standard on Tuesday. He added EPFO would start investing in equities in the next 20 days.

EPFO may invite nominations to appoint new fund managers for its investments in the stock market. "All our five portfolio managers have been selected on the basis of their experience in debt instruments and not equity," Jalan said. However, the procedure for appointing a portfolio manager will take about a year, so EPFO may start managing equity investments on its own.

EPFO has sought concessions from Sebi like waiving expenses towards investor awareness programmes. It has demanded separate expense structures for retail investors and high-end investors like pension funds and insurance companies. On payments too, EPFO has sought concessions. Jalan said this would help EPFO save "in crores."

TRADING FUNDS

• EPFO to start investing 5% in exchange trade funds in next 15-20 days
• It will begin by only investing in funds managed by public sector undertakings (PSUs)
• It has decided to invest in ETFs manufactured by SBI Mutual Fund
• Has drawn a contingency plan: Will pool in a month’s investment on a day when markets fall by 4% and a week’s investment on a day when markets fall by 2%
• EPFO may invite new portoflio managers to handle its investment in equity
• 75 per cent of its investment in equity will flow into Nifty companies and 25 per cent in Sensex companies
• Asked for certain concessions from Sebi, which may lead to savings in crores, such as waiving off expense towards investor awareness programmes

EPFO also decided that 75 per cent of its investment in equity would flow into Nifty companies and 25 per cent into Sensex companies.

Jalan said EPFO's annual investment in equity might rise to Rs 30,000 crore per annum in the next few years from Rs 5,000-6,000 crore in the current financial year.

On whether EPFO would buy stocks, he said, "I do not think it will be possible initially. Let us look at the present year and then we will look into whether we want to increase our investment in equity or go into other equity funds," he added.

The Union labour ministry notified a new investment pattern last month allowing EPFO to invest between five per cent and 15 per cent of its incremental corpus in the stock market. For 2015-16, EPFO has decided to invest only in ETFs.