Home / Politics / Policy /  EPFO to hike equity exposure in FY2017

The employees provident fund organisation (EPFO) will invest 8-10% of its annual incremental corpus amounting to nearly Rs14,000 crore in the equity market this financial year, increasing its investments in stocks—a move that is certain to bring cheer to the stock markets.

Last year, the pension manager invested over Rs7000 crore or 5% of the annual incremental corpus in stocks after the finance ministry persuaded it to do so.

“We are hiking the equity exposure," labour minister Bandaru Dattaterya said. The “good news" will be formally announced “within two days", the minister added.

EPFO’s decision is prompted by good economics. Last year, it earned 13% on its equity investments and only 8.6% on its debt ones.

EPFO manages a retirement corpus of over Rs8.5 trillion and functions under the Union labour ministry. It has an active subscriber base of over 40 million. In 2016-17, it is expected to have an incremental corpus of Rs1.4 trillion.

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.

Another labour ministry official who requested anonymity said the general perception in the government, following EPFO’s experience with equities so far, is that a long-term investment would fetch higher returns. He added that this means the pension manager could invest even more of its corpus in equities.

“We started with 5% last fiscal and will go up now. We may invest more than 15% of the annual accrual in equities in coming years as it’s important to diversify investments," the official said.

In 2015-16, EPFO paid its more than 40 million subscribers an interest of 8.8%.

Trade unions are not happy with EPFO’s plunge into equities and continue to oppose it. The speculative market can’t assure a good return to poor workers, said D.L. Sachdeva, national secretary of the All India Trade Union Congress. While the current returns look good, it will be tough to maintain the momentum, Sachdeva added.

The labour ministry official said that the ministry would press ahead with its move. To be sure, over the long term, equities return more than any other asset class, provided the stocks are picked sensibly.

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