EPFO may invest more funds in the stock market
EPFO has convened a meeting of its CBT to discuss several issues, and present its case to increase equity exposure above the current 5% threshold
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New Delhi: The Union government on Friday may opt to invest more provident fund money in the equity market, said labour and employment minister Bandaru Dattatreya.
If implemented, it would mean a fresh infusion of funds in equity markets.
The labour ministry-controlled Employees’ Provident Fund Organisation (EPFO) has convened a meeting of its central board of trustees (CBT) to discuss several issues pertaining to the retirement fund manager and present its case to increase equity exposure above the current 5% threshold.
“We will present our case to the CBT and try to build a consensus," Dattatreya said on Thursday without disclosing how much the ministry is looking to invest.
“In the last few months, our equity investment has turned positive (for the first time) and it holds a lot of promise," said the minister. “For the long term, equity exposure will give better returns," he said.
Currently, the EPFO invests 5% of its incremental corpus in the equity market via two exchange-traded funds (ETFs). The ministry is now looking to increase the percentage.
In 2015-16, the EPFO entered the stock market for the first time following a suggestion by the finance ministry. So far, the body has invested ₹ 6,700 crore in two ETFs and has earned a “return of 1.62%", said Dattatreya.
To be sure, the EPFO opted for equity investments at a time when the stock markets were at a high, implying that in the short term, the appreciation is modest.
An ETF comprises stocks that reflect the composition of an index, such as the Nifty or Sensex, and are traded on stock exchanges like company stocks. The two ETFs chosen by the EPFO were the SBI-Nifty ETF and SBI Sensex ETF. While 75% of the ETF went to the SBI-Nifty ETF, 25% was invested in the SBI-Sensex ETF.
In the previous fiscal, the finance ministry asked the EPFO to invest between 5% and 15% of its incremental corpus in equities, but the EPFO decided to invest only 5% of it.
Dattatreya said he is “hopeful of more investment in ETFs this fiscal".
“Let the CBT meeting happen and we will decide on how much to invest," he added.
The labour minister is the chairman of the CBT, the apex decision-making body of the EPFO. It is a tripartite body and comprises representatives of government, employers and employees.
Asked if they will jump to 10% of the incremental corpus on ETFs, he said an EPFO committee has discussed the quantum of investment but that the file has not come to him yet.
“We shall increase the equity exposure step by step. We have to approach it cautiously," the minister added.
In 2015-16, the EPFO had an incremental corpus of a little more than ₹ 1.3 trillion. This fiscal, it may grow by 15% to nearly ₹ 1.5 trillion. Even 5% of this corpus means ₹ 7,500 crore of ETF investment, and authorities in the ministry said that the threshold is set to go up.
A senior labour ministry official, who declined to be named, claimed that the EPFO is likely to add more ETFs.
But the labour ministry is set to face opposition from employees’ unions.
“The ministry has not formally circulated the agenda on ETF yet and has indicated that they will table it during the meeting. We shall oppose it because equity investment is speculative and may erode poor workers’ money," said D.L. Sachdeva, a national secretary of the All India Trade Union Congress.
“They may move ahead with their plan based on the support of other members, but union members are unanimous in their opposition," added Sachdeva.
Other than ETFs, the board will sign off on a ₹ 33 crore publicity drive to change the image of the EPFO. It may also allow three private banks—ICICI Bank Ltd, HDFC Bank Ltd and Axis Bank Ltd—to collect EPF contribution apart from nationalized banks such as SBI.
“It has been an endeavour of EPFO to accredit more and more banks for collection of dues as part of ease of doing business and to collect such dues through the internet," said the CBT meeting agenda note.
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