Home >politics >policy >EPFO confirms 10% investment in ETFs

New Delhi: It’s official. The Employees’ Provident Fund Organisation (EPFO) will double its investment in equities in the current financial year, leading to an inflow of more than Rs13,000 crore of retirement savings into the stock market.

“From our good experience and for better returns on investments, we have decided to invest 10% of EPFO annual incremental corpus in equities," labour minister Bandaru Dattaterya said in New Delhi, adding that the investment would be made via exchange-traded funds (ETFs).

Dattatreya said until the end of August, the EPFO had invested Rs8,000 crore in ETFs. Of this, it had invested Rs6,577 crore during the fiscal ending 31 March 2016.

“In 2016-17, we are investing Rs13,000 crore in the equity market," labour secretary Shankar Agga-rwal said, adding that EPFO fund managers will take immediate decisions based on the market situation.

What is surprising is that the government has not formally discussed the matter with the Central Board of Trustees (CBT), the apex decision-making body of the EPFO.

In August 2015, the retirement fund manager entered the equities market for the first time, channelling its investments through two ETFs. An ETF comprises a clutch of stocks that reflect the composition of an index, such as the Nifty or the Sensex, and are traded on stock exchanges like company stocks.

The two ETFs chosen by the EPFO were SBI-ETF Nifty and SBI Sensex ETF. While 75% of the corpus went to SBI Nifty, the rest was invested in SBI Sensex.

When asked whether the two ETFs would manage all the investment or new ones would be added, Aggarwal said that the ministry plans to work with the two already named and more will be added based on requirements.

The labour secretary said that the EPFO wants to give better returns to its subscribers, adding that based on its experience, more investment should go into stocks.

He said EPFO’s equity investments until the end of August had earned 13.24% at a time when returns from debt were around 8.6% and falling.

The move may make economic sense, but is likely to invite criticism from political parties and trade unions as they were not consulted.

Trade unions are an important part of the CBT that generally debates and approves such decisions. The CBT is a tripartite body comprising representatives of employees, employers and governments both at the state and central levels.

“CBT is not above the government," said Aggarwal. “We will inform them about the decision that the government has taken."

Trade unions termed the ministry’s decision “unilateral". “Government cannot take decisions on EPFO investments unless the CBT approves it. They are putting wrong examples and want to finish CBT to benefit stock markets," said D.L. Sachdeva, national secretary of the All India Trade Union Congress.

EPFO manages a retirement corpus of over Rs8.5 trillion and functions under the labour ministry. It has an active subscriber base of over 40 million. In 2016-17, it is expected to have an incremental corpus of over Rs1.3 trillion, the EPFO said.

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