EPFO mulls raising equity investment limit to 25% to bridge shortfall in returns
The Finance Investment and Audit Committee met nearly two weeks ago to discuss the matter. The proposal by the committee will be taken up at a meeting of the EPFO Central Board of Trustees (CBT) likely in the last week of June. The recommendation will then be sent to the labour and finance ministries for final approval, said the people cited above.
The investment committee has proposed to raise equity investment to up to 25% of daily inflows in two phases, Prabhakar Banasure, a CBT member told ET-first to 20% and then to 25% in the second phase. The roadmap and the details of the higher investment limits could not be ascertained. EPFO did not respond to ET’s queries.
Meetings with MFs
EPFO officials met leading mutual funds recently to gather feedback on possible investment avenues in equity schemes, said the people cited above. The EPFO invests in equities through Exchange Traded Funds (ETFs) tracking the Sensex and Nifty operated by
Mutual Fund and UTI Mutual. EPFO does not invest in actively managed equity mutual fund schemes or directly in stocks.
At the 15% limit, EPFO invests about ₹1,800-2,000 crore in these ETFs. The central provident fund body is said to be getting total flows of ₹600 crore every day on average, of which it uses approximately ₹200 crore to settle claims. This translates into ₹12,000 crore a month for various investments. If the equity investment limit increases to 25%, EPFO could potentially pump about ₹3,000 crore into the stock market every month.
“We believe equities will likely give handsome returns in the next few years,” said Banasure. “Existing other categories’ investment yields are not able to generate the desired returns on investments.”