The Government has allowed retirement fund body EPFO to invest 5 per cent of its corpus in exchange traded funds which will result in an inflow of around Rs5,000 crore to stock markets this fiscal. The labour Ministry has notified a new investment pattern for the Employees' Provident Fund Organisation (EPFO) which allows the body to invest 5 per cent of its funds in exchange traded funds (ETFs).
“We will invest 5 per cent of the investible funds of EPFO in the ETF (initially). The new investment pattern has been notified about two-three days ago,” labour Secretary Shankar Aggarwal told reporters. As per estimates, the EPFO's incremental deposits for 2014-15 would be around Rs80,000 crore.
During the current fiscal, the incremental deposits could be around Rs1 lakh crore as the body had increased the monthly wage ceiling for coverage under its social security schemes to Rs15,000 from Rs6,500 in September last year.
The overall corpus of EPFO at present stands at Rs6.5 lakh crore, but the outstanding investible funds are worth about Rs1 lakh crore. The quantum of investment in equities may increase in coming years. Elaborating further, Aggarwal said, “We will begin by one per cent and go up to five per cent by the end of this financial year. They (EPFO) have to reach the figure of 5 per cent by the end of this financial year.”
He further said: "The Finance Ministry had advised us to invest 5-15 per cent of corpus in equity market. We are entering into the equity market for the first time, therefore, we are a little cautious. "It is hard earned money of the employees. We cannot take that kind of risk (investing 15 per cent of corpus in equity). By end of this fiscal year we will touch a figure of 5 per cent."
Aggarwal added: "We have to begin investments in ETF only. We will decide how much proportion we will invest in PSU ETFs. If it is in the interest of workers then we will do that.”