EPFO may reinvest half of ETF redemption proceeds in equity: Report

The Employees’ Provident Fund Organisation (EPFO) is contemplating reinvesting 50 per cent of its exchange traded funds (ETFs) redemption proceeds back into equity, reported Business Standard. 

The PF body plans to do this to enhance its equity exposure and earn higher returns for its nearly 65 million subscribers

Sources close to the development said a proposal regarding this was discussed in the investment committee (IC) meeting in October last year, and the recommendation has been sent to the Central Board of Trustees (CBT), the apex decision-making body of the EPFO for its approval. The next CBT meeting is scheduled to be held on Saturday.

During April-October, FY24 EPFO invested ~27,105 crore in ETFs and the total investments of ETFs in the last seven years have crossed ~2.5 trillion. 

Raising the redemption period

The CBT will also consider another proposal to increase the redemption period for better yields for investments in equities from four years to seven years in the next six years. 

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Currently, the EPFO redeems ETF units periodically for around four years and the capital gains realised from this exercise is then treated as income and distributed to EPF subscribers as income.

The committee also recommended framing guidelines for investment in the units of Infrastructure Investment Trusts and Real Estate Investment Trusts sponsored by public sector undertakings up to 3 per cent of EPFO’s total portfolio. 

“The committee discussed and recommended to the CBT that it amend the investment management manual by removing REITs and InvITs from the restricted category and allow investment in such REITs and InvITs which would be sponsored by the units of public sector undertaking (PSU),” sources said.