As returns from equity spikes, EPFO set to hike stock market exposure to 15%

Enthused by better returns from its investment in the equity exchange traded funds (ETFs), the EPFO is set to enhance its stock market exposure to 15% of its incremental deposits, or an estimated R19,500 crore, in FY18, from 10% now.Enthused by better returns from its investment in the equity exchange traded funds (ETFs), the Employees’ Provident Fund Organisation (EPFO) is set to enhance its stock market exposure to 15% of its incremental deposits, or an estimated R19,500 crore, in FY18, from 10% now. The increase will be via the ETF route. Under the the investment pattern notified in 2015, the EPFO can invest up to 15% of its incremental deposits in the stock market. However, trade unions’ continuous opposition to “risky investments” forced it tread slowly.

The proposal to raise the exposure to 15% will be taken up for discussion in the next meeting of Central Board of Trustees (CBT), the EPFO’s highest decision-making body, scheduled for next month, labour minister Bandaru Dattatreya said “In the first year (2015-16), we invested 5% and in the second year, 10% of the incremental deposits. Our total ETF corpus is now around R17,000 crore, with returns of 8.7%-8.8%, better than fetched as interest rates. After discussion with stakeholders, our ministry will take a final decision (on raising ETF exposure to 15%),” Dattatreya said.

The retirement fund body, which has a total corpus of around R8 lakh crore and an estimated annual incremental flow of R1.3 lakh crore, had invested R6, 500 crore in exchange-traded funds in 2015-16. The investment so far in the current fiscal is over R10,000 crore. The minister said the returns from the stock markets is better than what the EPFO is paying to its subscribers and current trends are also favourable.

Trade unions, however, are likely to raise a protest on the proposal as they earlier did. However, last year, the government went ahead with its decision without approval of the EPFO trustees.
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