EPFO panel suggests investment in ETFs for 5-10 yrs for better returns

An expert group set up by retirement fund body EPFO has pitched for long-term investment in stocks ranging from 5-10 years, saying this would yield better returns for over six crore subscribers, according to a source.

The report of the panel set up by the Employees Provident Fund Organisation (EPFO) was listed on the agenda of its advisory body Finance and Investment Committee (FIC) meeting held on September 19, 2018.

However, a source said that the discussion on the report was deferred for the next meeting expected to be scheduled sometime in the first half of the next month.

"The panel has recommended that the EPFO should invest in the Exchange Traded Funds (an equity-linked scheme) for a long tenure of five years to 10 years to get higher returns and not for a short term of up to three years," the source said.

The five-member panel was headed by Financial Advisor and Chief Account Officer of the EPFO with HDFC Mutual Fund CEO on its board.

The EPFO in February sold a portion of its investments in ETF worth Rs 2,886 crore to maintain a higher rate of interest for subscribers for 2017-18. However, later the EPFO decided to lower interest rate to 8.55 per cent for last fiscal from 8.65 per cent provided in 2016-17.

The EPFO had announced 8.65 per cent rate of interest on deposits for 2016-17, a tad lower than 8.8 per cent in 2015- 16.

After that ETF sale, the body earned a return of around 16 per cent at Rs 1,054 crore. At present, the EPFO investment in the ETFs is over Rs 40,000 crore. The body has been investing in ETF since August 2015.

The body is developing a software to credit the ETF credits in their EPF account. Then the workers would have two components-Cash and ETF. The workers would have the option to liquidate the ETF at the time of withdrawal. But the body will sell the ETFs in the market to settle the withdrawal claim of the subscribers.

The EPFO had planned to start crediting ETFs into the subscribers' account by July this year. But the software is still under development and it would take some more time.