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Sunday, July 22, 2018

Equity-linked investments: EPFO exploring option to allow subscribers to change limit

The fund body plans to credit ETF units into EPF accounts from April this year

By: ENS Economic Bureau | New Delhi | Published: April 14, 2018 6:17:08 am
EPFO exploring option to allow subscribers to change limit The EPFO has planned to credit ETF (exchange traded fund) units into the EPF accounts from April this year after implementation of this new accounting methodology. 

Rolling out its new accounting policy, the Employees’ Provident Fund Organisation (EPFO) on Friday approved exploring the option to allow its subscribers to enhance or reduce their equity-linked investments from the current limit of 15 per cent. This recommendation, however, will be explored after the implementation of the new methodology, according to which only up to 15 per cent of the equity-linked units will be credited to subscribers, while all units over and above this allocation would be held by EPFO, the retirement fund body said in a statement.

The Central Board of Trustees (CBT) of EPFO in its 221st meeting also approved the recommendation of EPFO’s Finance, Audit and Investment Committee ( FAIC) to formulate a separate policy for periodic disposal of these EPFO-owned equity units. It also gave its nod for creation of a separate reserve fund for smoothening out volatility of equity returns and to provide equitable returns to all the subscribers, the statement said.

The EPFO has planned to credit ETF (exchange traded fund) units into the EPF accounts from April this year after implementation of this new accounting methodology. The CBT had last year approved an accounting and disbursing mechanism for the equity-linked investments to enable its 5 crore subscribers to track and redeem at market price the portion of their Provident Fund money invested in equity shares. As per the approved accounting policy of investment in equity (ETF), all subscribers of the EPF Scheme would individually have two account heads — Fixed Income, where fixed annual interest will get credited to member’s account and Equity, where investment in equity will be reflected as units and the return would be marked to market.

The EPFO has been investing in the stock market since August 2015, using ETFs, marketable securities that track an index like the BSE Sensex or the NSE Nifty, a commodity, bonds or a basket of assets. In 2015-16 it invested 5 per cent of its investible deposits that was subsequently increased to 10 per cent in 2016-17 and 15 per cent in 2017-18. Cumulatively, the EPFO has invested Rs 41,967.51 crore in ETFs with return of 17.23 per cent as on February 28, 2018. The body had sold ETFs worth Rs 2,500 crore in March this year, officials said.

On the issue of interest rate of 8.55 per cent for the EPFO subscribers for 2017-18, Labour and Employment Minister Santosh Gangwar on Friday said that he expects Finance Ministry to agree with their recommendation. “I think Finance Ministry will agree with our suggestion,” Gangwar told reporters after the 221st EPFO’s Central Board of Trustees meeting. The finance ministry is learnt to have written to Labour and Employment Ministry questioning the fixation of interest rate at 8.55 per cent for EPFO subscribers for 2017-18. In a letter last month, the Finance Ministry has questioned the sustainability of the interest rate along with raising concerns over the low surplus available with the retirement body after the interest rate payout to its subscribers.

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