Central Board of Trustees (CBT), the chief decision-making body of the Employees Provident Fund Organisation (EPFO) is mulling to increase the retirement fund’s equity market exposure to 15 percent incrementally from the current deposit rates of 10 percent. The decision on the same will be taken at a meeting on May 27, according to a report in The Financial Express.
EPFO in the past has invested subscribers’ deposits mainly into government securities and corporate bonds. However, in order to optimise the level of returns and diversify its portfolio, it started investing in exchange traded funds (ETFs) since 2015-16. According to an investment pattern notified in 2015, the EPFO can invest up to 15 percent of its incremental deposits into the stock market which is estimated to run up to Rs 1.4 lakh crore per annum.
The EPFO has shown a keen interest on investing more into equity markets citing the better record equity market has over traditional instruments such as government securities etc. However, it has been facing stiff resistance from trade unions into investing in such “risky investments” leaving the EPFO with no choice but to continue investing into options with low returns.
The finance ministry, initially, had opposed EPFO’s decision of paying out interest as high as 8.65% for 2016-17 initially. One could not blame the ministry’s worries as EPFO’s income has been falling with the falling interest rate regime.