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On 2 August, the issue of investments by the Employees’ Provident Fund Organisation (EPFO) in equity markets was raised in Rajya Sabha. The Opposition complained that the investments by EPFO in equity instruments have given lower returns than what were announced by the government. The EPFO, with Rs.7.5 trillion assets under management, entered the equity market in August 2015. Between then and 30 June 2016, it has invested Rs.7,468 crore in exchange-traded funds (ETFs). The absolute return on this has been 7.45%, when, for 2015-16, the government had announced an interest rate of 8.8% on EPF contributions. About 5% of the incremental accumulation to the fund corpus is invested in equity. This translates into less than 1% of the entire corpus. So, where all does the EPFO invest?
On 2 August, the issue of investments by the Employees’ Provident Fund Organisation (EPFO) in equity markets was raised in Rajya Sabha. The Opposition complained that the investments by EPFO in equity instruments have given lower returns than what were announced by the government. The EPFO, with Rs.7.5 trillion assets under management, entered the equity market in August 2015. Between then and 30 June 2016, it has invested Rs.7,468 crore in exchange-traded funds (ETFs). The absolute return on this has been 7.45%, when, for 2015-16, the government had announced an interest rate of 8.8% on EPF contributions. About 5% of the incremental accumulation to the fund corpus is invested in equity. This translates into less than 1% of the entire corpus. So, where all does the EPFO invest?
Apart from equity, EPFO’s funds are invested in different debt instruments, which give assured returns and high levels of security. At present, it is mandatory for EPFO to invest 45% of its incremental corpus in government securities and related instruments.
This can go up to 50%. Another 35% (maximum 45%) has to be invested in listed debt instruments issued by companies, banks and financial institutions. While making these investments, certain criterion for each sub-category have to be met, for example: profitability of the body issuing the bonds and credit ratings.
EPFO’S EQUITY INVESTMENTS
EPFO has chosen two ETFs—SBI Nifty ETF and SBI Sensex ETF. Between August 2015 and June 2016, EPFO invested a total of around Rs.1.25 trillion, of which just about 5% went into equity instruments. Of EPFO’s corpus earmarked for equity, 75% goes to SBI Nifty ETF and the remaining to SBI Sensex ETF.
While the current investment guidelines mandate the EPFO to invest at least 5% of its incremental corpus (which includes fresh accruals) in equity instruments, it can invest up to 15% of the incremental corpus. But the EPFO’s board of trustees has chosen to stay at the lower limit for now.
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