New Delhi: Despite higher returns from its stock market investments, retirement fund manager Employees’ Provident Fund Organization (EPFO) will not invest more than 15% of its annual deposits in equities.
Market volatility in an election year and opposition from sections of the EPFO central board, including employees’ representatives and trade union leaders, are being touted as the primary reasons for going slow on equity investments, said two government officials, requesting anonymity.
There is a clear intention on the part of the government to hike the equity exposure, but the current atmosphere is not conducive, said one of the two officials cited above.
The government was of the view that the EPFO should explore hiking the stock exposure to 20-25% of the annual accruals, given the handsome returns equity investments has fetched so far. Since August 2015, the EPFO has invested about ₹ 50,000 crore in stock markets with a notional return of around 15%.
Since the retirement fund money is for the long term, there is no harm in increasing equity investments, but “there are other compulsions", the second official added.
Authorities said while the current market volatility could mar returns, opposition from trade union representatives may be politically counterproductive in an election year.
Amid fears of a trade war, a depreciating rupee and rising crude oil prices, the Indian markets have been choppy for a while, eroding ₹ 3.62 trillion of investor wealth in just three trading days, Mint had reported on Wednesday.
Trade union leaders across party lines sitting on the central board of trustees (CBT) of the EPFO said their opposition to increasing equity exposure is steadfast. CBT is the apex decision making body of the EPFO.
“The stand is clear. If the government can give a sovereign guarantee on returns from equity, then we shall support. But that won’t happen and we are clear on our stand," said A.K. Padmanabhan, a CBT member.
“There is a clear government intention to hike the equity investment, but it wont happen at least this year," said M. Jagadiswar Rao, another CBT member. Rao, who is also a leader of the Bharatiya Mazdoor Sangh, a central trade union affiliated to the RSS, said the labour ministry and the government know the implications of putting workers’ money at risk.
The first official cited above said that despite the urge to increase equity investment, the finance ministry has not told them anything formally. “This indicates that the government is not too keen on an aggressive stand on equities at least this year," said the first official.
The EPFO had started investing in the stock market in August 2015 with a 5% exposure. It had subsequently raised its exposure to 10% in the last financial year, before further hiking it to 15%.
At present, the EPFO manages about ₹ 11 trillion of retirement corpus of 60 million subscribers.
It has annual accruals of around ₹ 1.5 trillion, 15% of which is invested in equities. Every month, an organized-sector employee contributes 12% of his or her basic pay to the EPFO kitty, and a matching contribution is deposited by the employer.