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Tuesday, June 28, 2022
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    HomeBusinessEPFO board likely to consider higher exposure to equity

    EPFO board likely to consider higher exposure to equity

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    FIAC’s recommendations are vetted by the CBT which then sends these to the finance ministry for its approval.

    The Central Board of Trustees (CBT), the tripartite apex decision-making body of the Employees’ Provident Fund Organisation (EPFO), is scheduled to meet on June 25-26 in Bangalore to deliberate on raising the orgnaisation’s exposure in equities to 25% of the fresh annual accretions in phases from the present cap of 15%.

    EPFO manages a Rs 17 trillion corpus and maintains over 240 million accounts pertaining to its members. It gets about Rs 2.3 trillion from around 6.5 million active subscribers annually.

    In view of the falling income from its investment which forced EPFO to declare an over-four-decade low of 8.1% interest on provident fund deposits for 2021-22, the Finance Investment and Audit Committee (FIAC), a sub-committee of the CBT, at its meeting last month discussed raising the investment ceiling in equities in two equal phases of 5% each to ensure higher returns for EPF members.

    “Various opportunities and options including the possibility of increasing the threshold of investment in equities were discussed in the last FIAC meeting. Bettering return on investment of the members is our sole intention. At the same time, we also look at risk mitigation in the current backdrop of volatile market conditions across the globe. We have listened to various presentations from the external experts and internal group of investment monitoring cell (IMC) of the EPFO on the pros and cons of the options and also discussed the need for the change in policy guidance” said K E Raghunathan, a member of both FIAC and CBT, said.

    FIAC’s recommendations are vetted by the CBT which then sends these to the finance ministry for its approval. As per the current investment pattern, EPFO invests between 45-65% in government securities, between 20-45% in debt instruments, up to 5% in short-term debt instruments, up to 15% in equities, up to 5% in asset backed, trust structured and miscellaneous investments.

    EPFO invests equities in the form of exchange traded funds (ETFS) both Nifty and Sensex. It started investing in ETFs with effect from August 5, 2015, initially with 5% of the annual investments. At its September, 2016 meeting, the CBT enhanced the allocation to 10% and in 2017, the threshold was further raised to 15%.

    In 2020-21, EPFO made Rs 32,071 crore investment in ETFs. Cumulatively, it made a total of Rs 1.38 trillion investment. However, it redeemed some investment at various points and as on March 2021, EPFO’s existing investment was Rs 1.23 trillion and the notional value of investment was Rs 1.6 trillion, indicating 14.67% return.

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