BackEPFO to invest in equities from Thursday
The retirement fund manager will enter the stock market through exchange-traded funds (ETFs)
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New Delhi: Retirement fund manager Employees Provident Fund Organisation (EPFO) will enter the stock market through exchange-traded funds (ETFs) on Thursday, four months after it decided to invest in equities.
Central provident fund commissioner K.K. Jalan said that to begin with, EPFO will invest in two ETFs , one built around the Nifty index of the National Stock Exchange and another around BSE’s Sensex. Going forward, it may diversify its basket of ETFs, he said.
According to a decision by the central board of EPFO, the retirement fund manager will invest up to 5% of its incremental corpus in ETFs in the current financial year. In other words, between 6 August and 31 March 2016, EPFO will pump in between ₹ 5,000 crore and ₹ 6,000 crore in the stock market.
“It is historic in the sense that EPFO is finally entering the equity market," said Jalan. “It may be a game-changer looking at the money EPFO will put into ETFs (eventually)," he said.
According to the July review paper of HDFC Securities, the total assets under management (AUM) of the “overall exchange traded funds (comprising gold, equity and liquid ETFs) fell by 1.2% during June 2015 to ₹ 13,838 crore from ₹ 14,005 crore in May 2015".
EPFO’s investment in ETFs this year could be “over 40% of the total ETF corpus in June" a labour ministry official said, speaking on condition of anonymity.
This person added that EPFO will only invest in equity ETFs and has no plans to invest in gold ETFs.
“The AUM of gold ETFs fell by 2.7% or ₹ 172 crore to ₹ 6,516 crore during June due to notable capital outflows coupled with fall in gold prices. Sensex ETF and Nifty ETF are the best options for medium-risk profile investors who want to get returns in line with the broader market returns," HDFC Securities said in its review report.
An ETF comprises a clutch of stocks that reflect the composition of an index, such as the S&P CNX Nifty or BSE Sensex, and are traded on stock exchanges like company stocks.
Jalan declined to give details on how much EPFO will invest on Thursday. “That will be known tomorrow," he said.
The top brass of the labour ministry including labour minister Bandaru Dattatreya will formally announce EPFO’s investment decisions in Mumbai on Thursday.
EPFO has around 45 million active subscribers and manages a corpus of over ₹ 6 trillion directly. The exempted trusts, or companies who manage their own PF money under EPFO guidelines, manage another ₹ 2 trillion.
The finance ministry has asked EPFO to invest between 5% and 15% of its incremental corpus in equities, but the central board of EPFO decided to invest only 5% this financial year and then take a call depending on the performance. Exempted establishments have been given the freedom by EPFO to invest upto 15% in equities if they wish to.
Jalan said ETFs are largely safe investment vehicles and is hopeful of a good return over a period of time. For the last five years, EPFO has been giving returns of between 8.25% and 9.5%.
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