EPFO has announced that it is going to increase its equity exposure.
New Delhi: The Employees’ Provident Fund Organisation has planned to increase its equity investments. The statuary body has announced that it is going to put the proceeds from the redemption of its investments in exchange-traded funds (ETFs) back into equity or other related investments.
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In March of this year, EPFO’s central board of trustees approved a resolution regarding the increase in its equity investments. As per the Economic Times, the minutes of the meeting of the retirement fund body said, “It is proposed that proceeds of ETF investments may be re-invested in equity and related instruments, which will increase the equity component to the permissible limit in the portfolio.”
Existing Regulations:
According to existing regulations, the EPFO can invest between 5% and 15% of the annual incremental deposits it receives in equities through ETFs, with the remaining amount going towards debt securities.
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ET has also reported that the current proportion of equity investments in the total Employees’ Provident Fund corpus was only 10% as of January 2023, and now with this decision, the EPFO is planning to go over the maximum limit of 15%.
If we talk about the timeline, EPFO’s equity investments were 5% in 2015–16, 10% in 2016–17, and 15 percent in 2017–18. Moreover, as of March 31, 2022, the retirement body’s total investment in ETFs was 9.24% of its total investments.
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Cumulative Investment Of EPFO In ETF:
As of today, the EPFO has not received the authorization of the Ministry of Finance, and it is expected to reach the government soon. It should be pointed out that EPFO must obtain regulatory approval before investing ETF funds in any permitted asset class in order to optimise returns.
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Pros And Cons Of The Decision:
As per ET, the increased investment of EPFO’s funds in equity may bring in more profits, but surely with an increased risk. As per experts, investing in equity is always considered risky when compared to investing in debt funds.
