INVSETMENTS IN STOCK MARKET BY EPFO
The EPFO as we know covers 190 industries (mentioned in schedule 1 of the EPF Act) with over 20 crore accounts in over 11.3 lakh covered establishments. EPFO's had 63.2 lakh pensioners till October 2019.
EPFO started investing in Equities from august 2015. At present, the Employees' Provident Fund Organization (EPFO) invests up to 15 per cent of its investible deposits into the exchange-traded funds (ETFs) and so far such investments total about Rs 55,000 crore.
EPFO only invests in Index funds. It does not directly purchase or sell shares. The EPFO fund manager has no role in deciding the inter se proportion of shares to be bought in NIFTY / SENSEX ETF. Shares are bought and sold in the same pre – defined proportion of the index according to their respective weightage.
It has been decided to invest 5% of yearly allocation to ETF during the current financial year. This will translate into approximately Rs 5,000/- crores every month.
EPFO will be invests in NIFTY and SENSEX ETFs of SBI Mutual Fund and in CPSE ETF. The investments would be done by the mutual fund on behalf of the EPFO. Instructions for investment are as per the approved guidelines. EPFO is relying more on the broader index Nifty. The 75% of earmarked fund goes to the SBI Nifty ETF, while only 25% is allocated for the SBI Sensex ETF. Nifty is 50 stock index, whereas Sensex is a 30 stock index. However, the investment ratio may alter in future. Nifty has given 15.6% annualized return since its inception in 1996. If EPFO gets similar return from the Sensex and Nifty ETF, the overall return of EPFO corpus would be higher.
Due to the better return, the EPFO would be able to give better rate on EPF. Currently it is 8.75%. However, you can’t expect a considerable increase as an investment in the equity market is a mere 5%. If we take average return 15%, the EPFO would be able to give a return of 9.06% instead of 8.75%. However, in the short term, it all depends on stock market movement.
