EPFO into Equities Last Updated : 16 Oct 2019

EPFO will be making use of SBI Mutual Fund for making investments in equities and will be dependent on factors such as liquidity, transparency, flexibility, and cost effectiveness as these are the major advantages when making investments in ETFs.

Many people might be familiar with the term EPF or Employees Provident Fund, especially the salaried section of workers. Close to about 6 crore individuals have invested in the Employees Provident Fund Organisation (EPFO) which allows them to build up a healthy pension fund. The entity EPFO has had long standing history of generating funds by investing in standard safer debt instruments like fixed income securities.

But keeping in mind the almost stagnant levels of inflation for the past few years, EPFO has finally decided to get its feet wet in the equities market in order to provide the expected returns from a long-term oriented Pension Fund.

Base Facts on Equity Investment by EPFO

The following are some of the milestones that go on to say how far the process of getting into the equities market has been accepted by EPFO and other provident fund trusts –

  1. EPFO will now be investing 5% of the total inflow (to the tune of INR 1 lakh crore) into equities
  2. Total investment by EPFO alone will be around INR 5000 crores
  3. Adding the contribution of other PF trusts, total investment in equities could be around INR 8000 crores
  4. Exempted PF institutions can invest up to 15% in equities
  5. EPFO will be investing in Exchange Traded Funds in the equity investing mode

EPFO investment in ETFs

ETFs or Exchange Traded Funds are basically groups of stocks that indicate the composition of an index like Nifty or BSE Sensex and are traded just like company stocks on the stock exchange.

EPFO will be going through SBI Mutual Fund for investing in equities and will be relying on the factors of transparency, liquidity, diversification, flexibility and cost effectiveness that it believes are the key advantages of investing in ETFs.

For starters, 75% of EPFO’s investment will be done in SBI Nifty ETF and 25% will be done in SBI Sensex ETF and SBI will be charging 0.005% as fund management charges. Gold, being quite volatile as of the last two quarters, is an area that EPFO will not be investing, in terms of ETFs. Investment will be done either in monthly terms or in lump sum values as seen fit.

The Road Ahead

Investment in the equity market is a welcome news for people investing in EPFO, since the pension fund is something that one requires to give better returns. Plus, since 1995 till 2015, the interest rates offered by EPFO have been steadily dropping through the highest inflation rate of 13.17% during 1997-98 and even during the lowest inflation rate of 3.77% during the early 2000s. Unless the institution adjusts its portfolio so that about 10 to 25% of its corpus is being invested in equities, it would be really difficult to bring in the returns that are expected out of the pension fund.

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