The Central Board of Trustees (CBT) of Employees’ Provident Fund Organisation (EPFO) approved hiking investment in Exchange Traded Funds (ETFs) to 15 per cent of its investible deposits from the existing 10 per cent. The 15 per cent investment in 2017-18 would be equivalent to around Rs 22,500 crore out of EPFO’s total investible deposits of Rs 1.5 lakh crore, Central Provident Fund Commissioner V P Joy said. “The ETF investment has given good returns, with an annualised return of 13.72 per cent so far. So the decision was taken to hike the investment to 15 per cent for 2017-18,” Joy said over the phone after the 218th meeting of CBT in Pune on Saturday.
The EPFO had started investing in ETFs in 2015. Out of the total ETF investment of Rs 22,800 crore so far, the retirement fund body has earned dividend of around Rs 234 crore, Board members said.
“There was some opposition by some members but broadly there was agreement on the benefits of ETF investment. The dividend of Rs 234 crore will be credited to the rate of interest account and is likely to help at the time of fixing interest rate for 2017-18,” Employees’ representative on CBT and RSS-affiliated Bharatiya Mazdoor Sangh’s Prabhakar J Banasure said. The Rs 234 crore dividend from the total equity-linked investment of the retirement fund body has come from SBI Mutual Fund, which manages around Rs 18,000 crore of the total investment, Banasure said. The rest of the amount is managed by UTI mutual fund, which is yet to give a dividend, he added.
The Board also discussed an exit policy for the equity-linked investment for individuals as suggested by IIM- Bangalore, but no final decision was taken on that. “The exit policy was debated but it has been deferred for the next meeting,” Joy said. “CBT members have asked for more details regarding the (ETF) investment and its resulting gains. It would be taken up in next meeting,” Ramen Pandey, CBT member and President, INTUC said.
The retirement fund body, EPFO, had entered the stock market by investing 5 per cent of its investible deposits in August 2015, which was raised to 10 per cent last year. In 2015, the finance ministry had allowed non-government provident funds to invest up to 15 per cent of its investible deposits in equity or equity-linked schemes.
Though the EPFO had prior approval to invest up to 15 per cent of its investible deposits of around Rs 1 lakh crore a year, it needed the CBT’s approval to raise the investment to 15 per cent. The issue was deferred earlier in the previous meeting of CBT held on April 12.
The Board in its meeting rejected the other proposal to reduce the share of mandatory contribution by employees and employers to 10 per cent each from 12 per cent of the income. Board members said that the proposal was rejected by both employers’ and employers’ representatives as well as state government officials. “Everyone including employers’, employees’ and government representatives rejected the proposal since it was felt it would favour corporates more than workers,” Employees’ representative on CBT and Bharatiya Mazdoor Sangh’s Virjesh Upadhyay said.
The proposal to reduce the contributions by employers and employees to 10 per cent of basic wages, including basic pay and dearness allowance had come up after demands from various quarters that there is a need to hike the present rate of EPF contribution and to bring it at par with other social security schemes, such as the National Pension System (NPS). However, it met with vehement opposition from all trade unions since the time it was initially proposed as they said it would dilute the social security schemes.