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EPFO made over Rs 67,000 crore from exchange-traded funds, shows data

Annual ETF investments of nearly Rs 36,000 cr on average since 2019-20

Topics
Employees Provident Fund | Exchange-traded funds | ETF industry

Sachin P Mampatta  |  Mumbai 



ETF
An analysis of returns over the past five years shows that equity markets have given higher returns than debt

The Employees’ Provident Fund Organisation (EPFO) has made Rs 67,619.72 crore from its foray into (ETFs).

It had invested a total of Rs 1.59 trillion, which is now worth Rs 2.27 trillion, according to the data disclosed in Parliament on August 8.

The are modelled on equity indices, including the S&P BSE Sensex, the Nifty50, and those tracking listed public sector companies.

Equity typically look to closely track the returns of benchmark indices. They do not seek to actively buy and sell their holdings to generate higher returns like an actively managed fund. They are considered a low-cost alternative to more expensive active funds, and do not have the same risk of underperforming the benchmark index.

The had begun to invest in equity since August 2015. The latest (LS) reply provided data over recent years. It revealed that around Rs 1.2 trillion of the overall Rs 1.59 trillion worth of have come since 2019-20.

The has invested an average of nearly Rs 36,000 crore every year in ETFs. It has already invested Rs 12,199.26 crore in the first three months of 2022-23.

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Financial advisors suggested higher allocations amid pushback since it would result in a more sustainable savings model for the retirement body.

Suresh Sadagopan, founder at Ladder7 Financial Advisories, said that a long-term investor like the EPF can afford to take the risk of equity exposure. Volatility is often short term, and the higher risk is compensated for higher returns, he said. He pointed out that global retirement and pension funds even take exposure to stock in foreign countries, and so a 15 per cent allocation to local equities is fairly conservative, he observed.

“They should consider higher amounts,” he said.

Kartik Jhaveri, director, Transcend Consulting (India), said that the has often been giving fixed returns that do not necessarily reflect the yield on its underlying portfolio. Higher allocations to equity can help bridge this gap, he said. He also pointed out that retirement schemes globally provide greater autonomy to individual accounts. This allows them more flexibility in terms of where they want to allocate their capital.

An analysis of returns over the past five years shows that equity have given higher returns than debt.

The had average five-year returns of 18.2 per cent as of March. It was 17.8 per cent for the Nifty50. Government debt yield as of end-March has been around 6.8 per cent on average over the past five years. It was 7.7 per cent for the highest-rated corporates, based on the Bloomberg FIMMDA ‘AAA’ Corporate data. The amount is even higher for slightly lower-rated companies, at 8.4 per cent, based on the Bloomberg FIMMDA ‘AA’ Corporate data. The Nifty CPSE Index, which tracks public sector companies, gave returns of 4.6 per cent in the same period.

The EPFO was reportedly looking to raise the allocation to equities, according to recent reports. A question on the same was part of the LS query which sought to understand whether the government was doing enough to ensure ‘adequate precautions to secure the interests of pensioners due to a volatile where there is no guarantee of return on investment, and any move it might be taking towards higher allocations’.

“No such proposal is under consideration of the government,” said the response.


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First Published: Tue, August 09 2022. 20:07 IST

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