EPFO may raise equity investment limit to 25% for higher income groups
Up to a fourth of your contribution to the employees’ provident fund (EPF) may go into equities if a plan being considered by the country’s retirement fund manager bears fruit.
Currently, the Employees Provident Fund Organisation (EPFO) invests 15% of contributions in equities and the rest in debt. According to two people aware of the matter, EPFO is considering allowing employees with higher salaries to route 25% of their PF contribution into stocks, while retaining the 15% cap for low-income employees.
“We have discussed the proposal a couple of times in recent months. In the next finance and investment advisory committee meeting, the issue will be taken up again,” said Prabhakar Banasure, a member of the committee. “The choice is a logical requirement in investment decisions,” he added.
If the proposal takes effect, this will be a departure from the EPFO’s one-size-fits-all policy for investing retirement savings of millions of subscribers.
The rethink comes as provident fund subscribers are seeking better returns even as returns from debt investments remain low.
The move, if its goes through, will also help EPFO take on com- petition from the National Pension System, which allows subscribers to invest up to 50% of their savings in equities.
The second of the two people cited earlier, who declined to be named, said that since many EPFO subscribers are not familiar with the stock market, increasing their equity exposure may not be advisable.
“Hence this differential equity treatment proposal,” this person added.
EPFO started investing in equity through exchange-traded funds from August 2015. It started by investing 5% of contributions, and has since raised it to 15%. The rest go into debt market instruments such as government securities, private sector bonds and bank fixed deposits.
EPFO has annual accruals of over ₹1.2 lakh crore and has total assets under management worth ₹11 lakh crore. Of its 50 million active subscribers, official estimates suggest that around 75% earn up to ₹15,000 a month.