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In a historic move, the Employees Provident Fund Organisation (EPFO) has commenced investing into Indian stock markets, a move aimed at generating inflation-beating returns in the long term. The move has come after 65 years of the retirement fund body’s inception.
The organisation, which has a corpus of about Rs 6.5 lakh crore, plans to invest Rs 5,000 crore or five per cent of its incremental inflow in the current financial year. The government has permitted EPFO to invest 15 per cent of its incremental inflow in stocks but the latter would like to reach that level in stages.
EPFO has chosen two index-linked exchange traded fund schemes — SBI Nifty ETF and SBI Sensex ETF — to invest its funds. About 75 per cent of the investment will be done through the former and and 25 per cent through the latter. SBI Mutual Fund is sponsored by India's largest lender, State Bank of India, sole manager of EPFO's corpus thus far.
The organisation, which has a corpus of about Rs 6.5 lakh crore, plans to invest Rs 5,000 crore or five per cent of its incremental inflow in the current financial year. The government has permitted EPFO to invest 15 per cent of its incremental inflow in stocks but the latter would like to reach that level in stages.
EPFO has chosen two index-linked exchange traded fund schemes — SBI Nifty ETF and SBI Sensex ETF — to invest its funds. About 75 per cent of the investment will be done through the former and and 25 per cent through the latter. SBI Mutual Fund is sponsored by India's largest lender, State Bank of India, sole manager of EPFO's corpus thus far.
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Bandaru Dattatreya, Union labour minister, said: “Thus far, EPFO money was invested in fixed-income securities and subscribers could get only moderate returns. At times, it was difficult to beat inflation. It was time to bring innovation in the way the funds of EPFO are being managed.” EPFO has been giving annual returns between 8.25 per cent and 9.5 per cent over recent years.
Bandaru Dattatreya, Union labour minister, said: “Thus far, EPFO money was invested in fixed-income securities and subscribers could get only moderate returns. At times, it was difficult to beat inflation. It was time to bring innovation in the way the funds of EPFO are being managed.” EPFO has been giving annual returns between 8.25 per cent and 9.5 per cent over recent years.
On the opposition from worker unions and in EPFO itself against pumping its funds in equities, one of the most risky asset classes, the minister said: “The decision has been taken in the best interest of the workers. That is why the ETF route is chosen, the most conservative way to invest in stocks. It will be reviewed next financial year. We might increase the proportion to beyond five per cent, based on the experience, and include other equity-related instruments without compromising on the safety of the investments.”
K K Jalan, the central PF commissioner, said in the first quarter of FY16, there were monthly incremental deposits of Rs 8,200 crore. “Thus, there will be Rs 410 crore to invest in ETFs every month.”
Arundhati Bhattacharya, head of State Bank of India, said: “For the first time, retirement savings of millions of investors will now be able to participate in India’s economic growth by investing in the equity market. The only way savers can have a good deal is by ensuring that they put their money in a variety of savings.”
