BackEPFO keeps the faith in stocks, set to invest Rs10,000 crore in FY17
EPFO, which functions under the labour ministry, incurred a loss of around Rs300 crore on its investment in stocks in FY16
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New Delhi: Notwithstanding the negative return it earned on its equity investment in the first year, the Employees’ Provident Fund Organization (EPFO) is set to channel more than 5% of its incremental corpus to the stock market this financial year.
“One-year return is not an indicator of equity returns. It will give us a better rate over a long period of time. We are convinced about the long-term benefit," labour minister Bandaru Dattatreya said on Monday.
In 2015-16, EPFO invested 5% of its incremental corpus, or a little more than ₹ 6,000 crore, in stocks. Labour ministry officials estimate that in 2016-17, the amount would rise to as much as ₹ 10,000 crore.
“The total annual incremental corpus of the EPFO is over ₹ 1.2 trillion. ₹ 10,000 crore will not be a big jump in a real sense because that is around 8.5% of the total annual savings," said a senior government official, who declined to be named.
“From 5% to 8.5% investment in equity is not a big growth," the official said, adding that “the exact percentage and the amount will be known after central board trustees of EPFO meets next month".
The EPFO, which functions under the labour ministry, incurred a loss of around ₹ 300 crore on its investment in stocks in the year ended 31 March.
Between 1 April 2015 and 31 March 2016, the Nifty index of the National Stock Exchange lost 9.87% and the BSE’s Sensex dropped 10.3%.
In August 2015, the retirement fund manager entered the equities market for the first time, channelling its investments through two exchange-traded funds (ETF).
An ETF comprises a clutch of 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-ETF Nifty and SBI Sensex ETF. While 75% of the ETF went to SBI Nifty ETF, 25% was invested in the SBI Sensex ETF.
In the past fiscal year, 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 the EPFO has discussed investments this year with stock market experts and portfolio managers.
“A complete report will be presented in the CBT (central board of trustees) meeting soon and a final decision will be taken," the minister said.
The CBT comprises the representatives of employees, employers and the government and is the apex decision-making body of the EPFO. The labour minister is the chairman of the CBT.
Labour unions have been less than happy with the EPFO’s move to invest a part of its incremental corpus in stocks.
“When you are earning negative return, then you need to be cautious. We have not yet understood why it supports more money going to stock market," said D.L. Sachdeva, a national secretary of the All India Trade Union Congress.
In 2015-16, the EPFO paid its more than 40 million subscribers an interest rate of 8.8%.
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