The Employees’ Provident Fund Organisation (EPFO) has held a “preliminary discussion” on raising the cap for investments linked to equity from 15 per cent of incremental flows to 20-30 per cent, to shore up returns for the distribution of interest income to its six crore active subscribers, officials said. “This is a preliminary discussion for raising the investment cap for equity investments. Last 2-3 months, discussions have been happening about what to do to provide better interest this fiscal and coming financial years. Because in the last 4-5 years we cut down on various risky instruments which were giving higher returns and with high risks. Earlier, such investments would earn 9-10 per cent and shifting these to the debt side would yield not more than 6-7 per cent. So it’s about putting money in the right baskets. It’s very important to invest some percentage in high gain opportunities with due caution and control in these turbulent and testing times of the economy,” KE Raghunathan, a member and Employees’ representative of the EPFO’s Central Board of Trustees (CBT) said. The Finance Investment and Audit Committee (FIAC) had met on May 24 in Mumbai to discuss investment patterns and proposals for revision of guidelines and various options of hiking the equity investment limit with the fund managers. 🚨 Limited Time Offer | Express Premium with ad-lite for just Rs 2/ day 👉🏽 Click here to subscribe 🚨 “In the 85:15 proportion of investments of EPFO with debt and equity (respectively), fund managers were asked about the rate of return for both type of investments and how can a higher rate of return be achieved if the equity investment cap is raised to 20 or 25 or 30 per cent from 15 per cent at present,” another CBT member said. The CBT is likely to take up this issue for discussion at its next meeting, which may happen at the end of this month, the person said. The EPFO can invest up to 15 per cent of investment in equity, as per the pattern of investment notified by the Centre and internal guidelines. It invests only in exchange-traded funds (ETFs) and not individual shares. The rate of return from investments of EPFO assumes significance as the retirement fund body opted to lower its interest rate for 2021-22 to 8.1 per cent, a four-decade low. The Finance Ministry, which ratifies the EPF interest rate recommended by the CBT, has over the years questioned the high interest rate offered by EPFO. It had questioned the 2019-20 rate and the 2018-19 rate of 8.65 per cent as well, besides the EPFO’s exposure to IL&FS and similar risky entities. In September 2020, the CBT had recommended splitting the payment of the interest for FY20 into two parts, citing “exceptional circumstances arising out of Covid-19.” However, January 2021 onwards, the EPFO began to credit the interest in one go. The retirement fund body earned net interest of Rs 72,811 crore in FY21 on investments including equity-related investments from contributions from the establishments managed by it, as per EPFO’s latest annual report. The organisation’s return on debt instruments in 2020-21 was 6.87 per cent. It had invested Rs 7,715 crore in equity till June 30 last year and Rs 31,025 crore in FY21.
