EPFO to invest ₹18,000 cr in equities this fiscal year

HIGH RETURNS Equity exposure has given significant gains for over a year now

Retirement fund manager employees provident fund organization (EPFO) is set to invest at least ₹18,000 crore in equities this financial year, a move that may further cheer up the bullish stock market.

Labour Minister Bandaru Dattatreya on Monday told reporters in New Delhi that his ministry is positive on more equity exposure of EPF corpus because of the “encouraging returns” it has received over the last one and half years.

EPFO functions under the union labour ministry and it started investing in equity from August 2015. While in 2015-16, it invested 5% of the annual incremental corpus and in 2016-17, it invested 10%.

“We have to increase the basket. The central board of Trustees (CBT) of the EPFO is meeting on May 27 and we hope to reach a decision on this,” said Dattatreya, who is also the chairman of the EPFO’s CBT.

CBT is the apex decision making body of the retirement fund manager. In April, CBT could not reach a conclusion on hiking the equity exposure to 15% of the annual EPF accruals as it was not part of the agenda. “We are making this part of the agenda this time,” the minister said.

The news could spur the bull market further. On Monday, Nifty was ended the day’s trade ETFsofSBIMF ETF of UTI FM CPSEETF* at 9445.4, nearly half a percentage point more than the previous trading day.

Dattatreya said his ministry has the option, provided by the finance ministry, to invest 15% of the annual incremental corpus in equities.

“We have increased the equity exposure gradually. Now we can go from 10% to 15% in 2017-18,” he said. EPFO has an annual incremental corpus of more than ₹1.2 trillion and 15% of that will be at Return (in %) (As of Mar 17, 2017) least ₹18,000 crore.

EPFO invests in equities via exchange traded funds. An ETF comprises a clutch of stocks that reflect the composition of an index, such as the Nifty or the Sensex, and are traded on stock exchanges like company stocks.

So far, the retirement fund body has invested nearly ₹18,600 crore via ETFs run by SBI Mutual Fund, UTI Mutual Fund and the central public sector enterprises ETF run by the Reliance Mutial Fund.

Of the total corpus, while ₹15,206 crore has gone to two ETFs run by SBI MF, close to ₹1,900 crore has gone to UTI MF and about ₹1,504 crore has gone to the CPSE ETF.

Dattatreya said his ministry is positive on long term bet on equity because it will “reduce risk and give a better return” and so far, their ETF investments has earned more than 13% return.

And, this is significantly higher than the less than 8.5% return it has got from debt investments in recent time.

In the absence of an exit policy, some feel that the EPFO may not be able to capture the good return it is witnessing in recent times. And keeping that in mind, the body is likely to devise an exit policy for its equity investments in the next CBT meeting.

“Though we are in equity for long term, it is better to have an exit policy to benefit from a bullish market of the fund mangers feel so,” said an EPFO official, who declined to be named.

Dattatreya, however, said that the EPFO is being guided by expert agencies and they will advise them suitably.

However, this plan is likely to face some resistance from conservative labour unions that are part of the CBT, as they all believe that a low risk-free return is better than a possible higher return by entering a speculative market.