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EPFO’s higher equity exposure

Labour ministry & the Central Board of Trustees, have agreed to increase the EPFO’s exposure through the ETF route
By Rounak Kumar Gunjan | March 24, 2017

The highs and ebbs of the equity market have forever attracted and at the same time dismayed the interested. The bull market has this time managed to rope in 15 per cent of the Employee Provident Fund Organisation’s (EPFO) investments out of its investable income in light of the market’s rising return potential.

Union labour minister Bandaru Dattatreya on Sunday said, “We are proposing to invest up to 15 per cent during the next year. Central Board of Trustees (CBT) meeting will be held on 30 March. We will seek its opinion. So far, during the past one-and-half year we have invested Rs 18,069 crore. We are getting good yield. It is encouraging.” The proposal shall be taken up in the CBT meeting to be held on 30 March 2017.

In the ongoing financial year, the provident fund body invested the amount in the two index-linked ETFs (Exchange Traded Funds), the BSE's Sensex and the NSE's Nifty which yielded a return of 18.13 per cent. The first time the EPFO took exposure to equities was in 2015, when it invested 5 per cent of its incremental corpus.

“The direct implication of this is that there is a lot of flow in the market and the money is being used in stocks which is definitely positive for the market. More flow automatically corresponds to more demand and more demand means stability in the market. As far as increasing the amount is concerned, yes, they increase from time to time and are thinking in the same direction which is a positive sign,” said D P Singh, executive director and chief marketing officer, SBI Mutual Fund.

This year the investable income of the provident fund body is approximated to be about Rs 1.40 lakh crore. The EPFO had started investing in ETFs in August 2015 wherein it started with a fixed percentage of 5 per cent after which raised it to 10 per cent last year.



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