Government on Wednesday sought to allay fears over investments by EPFO into ETFs, saying that their performance should be viewed over a long period of time and the retirement fund body has already got over 12 per cent return within a year, higher than G-Secs.
“If you are going to invest wisely in a pool of equity then surely there is not much of a risk. We cannot evaluate the performance of equity on the basis of one, two or three months. When we invest in equity, we invest for 20 or 30 years,” Labour Secretary Shankar Aggarwal said.
“As on July 31, 2016, we got a return of over 12 per cent (on equity) as compared to 8 or 7.5 per cent on G-Secs,” he said at an industry event in New Delhi.
The Employees’ Provident Fund Organisation (EPFO) started investing in exchange traded funds (ETFs) in August last year and has invested Rs 7,465 crore till June 30, 2016.
Though the EPFO can invest up to 15 per cent of its investible deposits in equity or equity related scheme, the body had decided to park 5 per cent of its available funds in ETFs to start with.
On the potential risks of such investments, Aggarwal said: “This apprehension that when we invest in equity is a very risky business is far from way. Yes, there is a little bit of risk even when moving out of your home. There is a risk of meeting with some kind of accident.”
Labour Minister Bandaru Dattatreya has already indicated that investments in ETFs would be increased from existing 5 per cent and can go up to 12 per cent. On Tuesday, replying to a Calling Attention Motion of Ahmed Patel (Congress) in Rajya Sabha, Dattatreya said his paramount interest will be safeguarding the workers’ interest.
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Patel’s motion was on the alleged diversion of money from EPFO to stock market. “There is no question of diverting funds. This government is pro-poor, pro-worker and pro-progressive… We have made (investments) in Exchange Traded Funds (ETFs) and not in share markets,” the Minister had said.
ETF is a fund which holds several assets such as stocks, commodities or bonds and most ETFs track an index like a stock index or a bond index.
Asked whether the EPFO trustees will approve the increase in ETF investments, Aggarwal said, as per law, this power (of deciding investments of EPFO funds) is with the Labour Ministry.
“The government can decide in consultations with the Central Board of Trustees. But the strength of employees’ representatives is less in the board. Even if all the 10 workers’ representatives out of total 42 members oppose, they remain in minority,” said All India Trade Union Congress Secretary D L Sachdev.
The workers’ representatives should be given more weightage in the board while deciding on rucial matters like investing EPFO funds, he added. The trade unions have been opposing investments in stock markets in view of their volatile nature.
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