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EPFO to invest over Rs18,000 crore in equity this fiscal

LiveMint logoLiveMint 27-05-2017 Prashant K. Nanda

New Delhi: The central board of trustees (CBT) of the Employees Provident Fund Organisation or EPFO on Saturday allowed the retirement fund manager to invest 15% or over Rs18,000 crore in stocks this financial year, a move that may further stimulate the stock market already trading at a record high.

“The CBT approved the proposal to hike the equity exposure,” said Prabhakar J. Banasure, a CBT member said over phone after the meeting at Pune.

But the CBT comprising employees, employers and government representatives dismissed the proposal to reduce the EFP contribution from 12% to 10%.

“Without discussing much, majority of the members from all segments of the board rejected the proposal,” Banasure said.

CBT members also criticised the labour ministry’s proposal to reduce it only for employer’s. “No reduction for now—both employees and employers will continue to pay 12%,” he added.

On enhancing equity exposure, however, there was a majority support for the proposal.

“The labour minister Bandaru Dattatreya and some officials argued that equity exposure via exchange traded funds (ETFs) is giving them better returns and there is no harm is hiking this from current 10% to 15%. Most of us found merit in it,” said Banasure, who is also a member of the EPFO’s finance investment advisory committee.

EPFO functions under the Union labour ministry and started investing in stocks in August 2015. In 2015-16, it invested 5% of the annual incremental corpus in equities and in 2016-17, 10%. EPFO has an annual incremental corpus of more than Rs1.2 trillion and 15% of that will be at least Rs18,000 crore. Mint reported on 15 May that it is the body is looking to invest 15% and a final decision will be taken on 27 May.

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.

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 is traded on the stock exchange. So far, the retirement fund manager has invested at least Rs. 18,600 crore via ETFs run by SBI Mutual Fund, UTI Mutual Fund and the central public sector enterprises ETF run by Reliance Mutual Fund. The investments have returned a rate of over 13%.

Meanwhile, the CBT also allowed the EPFO to exit the market when the fund managers feel that they need to take the money off the stock market. So far, EPFO did not have a policy guiding its exit from equity investments.

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