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EPFO to initiate investment above Rs 18,000 crore in equity this fiscal

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The central board of trustees (CBT) of the Employees Provident Fund Organisation (EPFO) has allowed the retirement fund manager to invest 15 per cent or over Rs18,000 crore in stocks this financial year.

 This move may further motivate the stock market already trading at a record high.

“The CBT approved the proposal to hike the equity exposure,” said Prabhakar J. Banasure, a CBT member.

But the CBT comprising employees, employers and government representatives dismissed the proposal to reduce the EFP contribution from 12 per cent to 10 per cent.

“Without discussing much, majority of the members from all segments of the board rejected the proposal,” Banasure added.

“CBT members also criticised the labour ministry’s proposal to reduce it only for employer’s. “No reduction for now—both employees and employers will continue to pay 12per cent,” he added.

“Labour Minister Bandaru Dattatrey and some officials argued that equity exposure via exchange traded funds (ETFs) is giving them better returns and there is no harm is hiking this from current 10per cent to 15per cent. Most of us found merit in it,” said Banasure, who is also a member of the EPFO’s finance investment advisory committee.

EPFO works under the Union labour ministry and started investing in stocks in August 2015. In 2015-16, it invested 5 per cent of the annual incremental corpus in equities and in 2016-17, 10per cent. EPFO has an annual incremental corpus of more than Rs1.2 trillion and 15 per cent of that will be at least Rs18,000 crore.

 In April, CBT could not reach a conclusion on hiking the equity exposure to 15per cent of the annual EPF accruals as it was not part of the agenda.

EPFO invests in equities via exchange-traded funds. An ETF comprises a clutch of stocks that reflect the composition of an index, such as the Nifty or the Sensex, and is traded on the stock exchange. So far, the retirement fund manager has invested at least Rs. 18,600 crore via ETFs run by SBI Mutual Fund, UTI Mutual Fund and the central public sector enterprises ETF run by Reliance Mutual Fund. The investments have returned a rate of over 13per cent.

Meanwhile, the CBT also allowed the EPFO to exit the market when the fund managers feel that they need to take the money off the stock market. So far, EPFO did not have a policy guiding its exit from equity investments.

 

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