EPFO Board approves reinvesting 50% ETF redemption proceeds into equity

The board also approved the rollout of the centralised payment system by Dec 31 which will allow pensioners to withdraw money from any branch of any bank nationwide

In a bid to further enhance its equity exposure and earn higher income for its nearly 70 million subscribers, the central board of trustees of the Employees' Provident Fund Organisation (EPFO) on Saturday approved reinvesting 50 per cent of its exchange traded funds (ETFs) redemption proceeds back into equity, sources told Business Standard.  This was the 42-member board's first meeting in the current fiscal year. The last meeting of the board, which is the apex decision-making body of the EPFO, was in February earlier this year, where it approved an interest rate of 8.25 per cent for FY24. 

On Saturday, it also approved increasing the ETF redemption period from four years at present to seven years over a span of six years for better yields. 

“The remaining redemption proceeds are to be invested in other asset classes such as government securities and debt instruments,” said sources. 

The latest data shows that total investments by the retirement fund body into the ETFs crossed Rs 2.3 trillion by March 2024, which is 9.49 per cent of its total investible corpus. 

The EPFO only invests in equity through ETFs and had started investing 5 per cent of its investible corpus in equity based on the S&P BSE Sensex and National Stock Exchange Nifty50 in August 2015 to earn higher income. 

Moreover, the Board also gave its final nod to the centralised pension payment system (CPPS) which will enable pensioners to receive their pension from any branch of any bank, anywhere in the country. 

“The CPPS will be implemented from December 31. Currently, it's running as a pilot project at 21 locations across the country. This will be of great help for the pensioners,” a member who was present in the meeting told Business Standard. 

The board also discussed diversifying its investment in the equity market beyond ETFs. 

“While a decision on this is some time away, there were positive discussions on investing in other asset classes that are allowed by the notified pattern of investment in the equity market. The aim is to earn a higher income but with prudence,” sources said.