Home/ Markets / Stock Markets/  EPFO in a spot after dismal CPSE ETF and Bharat 22 ETF returns

New Delhi: The decision of the Employees’ Provident Fund Organisation (EPFO) in 2017 to invest in select exchange traded funds (ETFs) to help the government meet its disinvestment targets has yielded subpar returns for its subscribers.

Two days before announcing the annual EPF interest rate, calculations by the EPFO show that its investments in CPSE ETFs and Bharat 22 ETF have yielded just 1.89% and 0.48%, respectively, as of 31 December, according to official documents reviewed by Mint.

That compares unfavourably with the yields on ETFs run by SBI Asset Management Co. and UTI Asset Management Co. for the retirement fund manager. While the SBI mutual fund ETFs returned an average of 12%, the ETFs run by UTI have yielded 10.31% as of 31 December 2018 since EPFO started investing in ETFs in August 2015. The issue is likely to be discussed at the central board meeting of EPFO on Thursday.

EPFO, which works under the union labour ministry, first invested in the CPSE ETF in January 2017 on the prodding of the finance ministry. “The ministry wanted us to invest 3,000 crore, but we have agreed to invest 2,800 crore as of now," the then central provident fund commissioner, V.P. Joy, had said in an interview in January 2017.

“Mindless investment to achieve goals of the government always has its shortcomings. EPFO has to understand that there is a difference between investors investing by informed choice, and poor workers’ money getting invested by compulsion through substandard ETFs," said A.K. Padmanabhan, a central board trustee of EPFO.

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(Paras Jain/Mint)

As of now, EPFO has invested in CPSE ETFs in three tranches beginning January 2017 and in Bharat 22 ETF in two tranches beginning November 2017. Overall, in both these instruments, the retirement fund body has invested a total of 5,507 crore.

Experts said the two government-sponsored ETFs are unsuitable for investments by pension funds. “Bharat 22 ETF or CPSE ETF are simply not good investment vehicles. They are tailored for achieving government goals, not EPFO subscribers’ goals. It’s not the right choice," said Suresh Sadagopan, founder of Ladder7 Financial Advisories. “I don’t see a lot of merit in such investments, that too when there are enough broad-index ETFs available to invest in."

The EPFO administration is likely to consider further investments in ETFs at the Thursday meeting, an EPFO central board member said on condition of anonymity.

“When EPFO first invested in the stock market about three years back, the primary argument was it will help earn better interest rates, but if you look at these two ETFs that EPFO has invested as part of the government’s disinvestment process, then you would know why it was facing opposition earlier," the person said.

A labour ministry spokesperson declined to comment.

Since EPF interest rate is a yearly payout, a good yield is a primary requirement, the person said. So, the return from CPSE ETF and Bharat 22 ETF raises a question on the merit of the investments, more so when its other equity exposure is doing relatively better, the person added.

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Updated: 19 Feb 2019, 11:59 PM IST
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