In line with the pension sector in the leading economies — but in opposition to the sentiments of Indian trade unions — the Employees’ Provident Fund Organisation (EPFO) is increasing its equity exposure to the stock market. The move would reduce the government’s subsidy burden when markets perform below par and offer better returns to pensioners at all other times. The EPFO had started investing 5 per cent of its incremental deposits in exchange-traded funds in August 2015. Returns of 13.24 per cent have emboldened the national manager of employees’ funds to double its commitment to the market, and invest 10 per cent or Rs 13,000 crore.
Since government holds public money in trust, it cannot expose it to excessive risks. This is the main ground on which trade unions have opposed market exposure of pension funds. However, it should be noted that several safeguards are in place. While equity is innately riskier than debt, which governments have traditionally preferred, exchange-traded funds are baskets of assets like stocks, bonds and commodities in which risk is spread thin. If one constituent company falters, the performance of the rest should cushion the shock. Besides, the EPFO has a corpus of Rs 8 lakh crore, which will remain untouched by this development. Earnings from the corpus would offer a substantial hedge against turbulence, even if it is invested in safer instruments reflecting debt rather than equity, delivering correspondingly lower returns. And in the event of a market failure — there are now too many geopolitical uncertainties to rule out this possibility — the government remains the final guarantor of public pensions.
Trade unions have criticised the Ministry of Labour for rushing through the decision to increase market exposure without a full process of consultation with the EPFO trustees. Even if the process has been incomplete, the government’s fault is technical. It could have been castigated if the ministry sought to invest the entire funds of the EPFO in a single company, or a small number of high-performance companies, which would invite higher risk. However, there are several layers of protection between the provident fund investor and market volatility. And eventually, while working towards better market regulation and corporate governance, the EPFO may be given the option of exposing its funds directly to high-return equity. Growth and demographics will soon make social security a burden impossible for government to bear alone, and it must depend increasingly on markets.
- The Royal Opera House Reopens After Decades Of Neglect: Here’s A Quick Tour
- Tata Sons Rubbishes Cyrus Mistry’s Allegations: Here’s What Happened
- Pakistan High Commissioner denies allegations leveled on his staffer for espionage activities
- Odisha: Villagers Refuse To Cremate Dalit Woman’s Body
- Here’s What Farhan Akhtar Said On Karan Johar-MNS ‘Deal’ Over Ae Dil Hai Mushkil’s Release
- Government’s Diwali Gift to Central Government Employees, Pensioners
- Bigg Boss 10 26th October Review: This Episode Is All About Fights
- New Zealand Beat India By 19 Runs In Ranchi; Series Levelled At 2-2
- DND Toll-Free: Noida Toll Company Moves Supreme Court Against Allahabad High Court
- British PM Theresa May Says Kashmir Is A Matter For India, Pakistan To Sort Out
- J&K: Students Suffer As Schools Along LOC Forced To Shut Amid Firing
- Jayalalithaa’s Health: AIADMK Women Supporters Continue Special Prayers For CM
- HTC Desire 10 Lifestyle First Look Video
- Fissures Remain Within Samajwadi Party: All You Need To Know
- Big Cheer For Delhi-Noida Commuters, DND Flyway Becomes Toll Free