Nearly 64 years after its formation, the Employees’ Provident Fund Organisation (EPFO), India’s state-run pension fund with a retirement corpus of Rs 8.5 lakh crore, has cautiously kicked off the process of investing in the stock market on Thursday with an initial allocation of Rs 5,000 crore for the current fiscal.
While announcing the EPFO entry into the stock market, top government officials said the pension fund could invest more into equities in the next fiscal year starting April by raising the current limit set at 5 per cent of total investable assets.
The money will be invested through exchange traded funds (ETFs) and the limit for the current year will be five per cent of the incremental deposits. “EPFO funds will be invested through SBI Nifty exchange-traded fund (ETF) and SBI Sensex ETF managed by SBI Mutual Fund.
Close to 75 per cent of the funds will be invested in NSE ETF and the balance 25 per cent in BSE ETF. When the central PSE ETF gets ready, we will think of investing in that as well,” Union labour minister Bandaru Dattatreya said.
The proposal to invest EPFO funds in the stock market was pending for several years due to stiff opposition from trade unions.
“Even though the EPFO will be investing only 5 per cent of its incremental flow by the end of the current fiscal, we will review the situation after that to decide whether we should increase it next year,” Dattatreya said. EPFO could increase that proportion to 10-15 per cent next fiscal year and consider investing in other ETFs, EPFO Commissioner KK Jalan said.
Union Labour Secretary Shankar Aggarwal said the EPFO investment into the stock market can go up to 15 per cent of the incremental deposit every year. As the EPFO gets around Rs 1,00,000-1,20,000 crore as incremental deposits every year, ETF investment can go up to Rs 15,000-20,000 crore. “It (investment) depends upon the market. The Finance Ministry norms allow me to invest up to 15 per cent (of incremental deposits) but CBT (Central Board of Trustees) allows me to invest 5 per cent in ETFs to start with,” Jalan said.
“During the April-June period, EPFO’s monthly incremental deposit was around Rs 8,200 crore. Thus it will have around Rs 410 crore at its disposal to invest in ETFs every month,” Jalan said.
Dattatreya said when the EPFO decided to invest in the stock market, there was opposition from some sections. “Studies have revealed that investment in markets have given better returns across the world. We are a long-term player and in long-term equity market behaves in a positive manner. They have always given a positive return (in long-term),” Jalan and Aggarwal said.
Jalan said the investment would be reviewed periodically. “We will do everything possible to get maximum returns to the workers. But risk element of equity going down is always there. That risk element is very very less because it is only 5 per cent of incremental deposit… even if we invest Rs 6,000 crore as you say that is even less than 1 per cent of our corpus,” he said.