The Employees’ Provident Fund Organisation (EPFO) will start investing in equity-related instruments from the next month, sources say.
According to a new investment pattern, to be made public soon, the EPFO will invest 5-15 per cent of its incremental corpus in equity and equity-related instruments such as exchange-traded funds (ETFs). This new investment pattern, to be effective April 1, is what the finance ministry had suggested to its labour counterpart. Business Standard has reviewed a copy of the draft notification.
“We will start investing in ETFs, likely from the next month,” said a labour ministry official. Initially, the ministry is expected to invest five per cent in ETFs.
The EPFO won’t appoint a new fund manager for the new investment pattern. Currently, it has five fund managers — SBI, ICICI Securities Primary Dealership, Reliance Capital, HSBC AMC and UTI AMC — for managing its corpus through the next three years.
EPFO’s overall corpus stands at about Rs 6 lakh crore. An official said the incremental corpus for 2014-15 was estimated at about Rs 80,000 crore; this means up to Rs 12,000 crore could find its way into the stock markets this year. It might, however, be higher, as the investment would include the “sum of un-invested funds from the past, receipts such as contributions to the funds, dividend or interest or commission, maturity amounts of earlier investments”, among other things, according to the new investment norms.
The labour ministry will have to change the provisions of the Employees’ Provident Fund Scheme to allow the entity to invest in stock markets. Section 52 of the scheme says the EPFO can invest employees’ money in line with the Indian Trusts Act, 1882. “However, the Indian Trusts Act has already been amended to allow funds to be parked in equity and debt instruments. We will have to make a minor change in the EPF scheme. We will pass an executive order in this regard,” said the official quoted earlier.
The EPFO has set up a risk management committee to monitor returns from the investment in equity and equity-related instruments. “There should be another layer to ensure the rules of the game are transparent and everybody is accountable,” said another official.
The committee is studying the workings of entities such as the Life Insurance Corporation of India (LIC). In 2013-14, LIC had invested Rs 40,000 crore in equity markets.
The EPFO’s plan to invest in ETFs follows the finance ministry suggesting a revised pattern of investment for non-government provident funds, superannuation funds and gratuity funds in March.
This was approved by the central board of trustees (CBT), the highest decision-making body of the EPFO, chaired by Labour Minister Bandaru Dattatreya. The labour ministry notifies its investment pattern after considering the recommendations of the CBT.
The new pattern will allow the EPFO to park 45-50 per cent of its funds in government securities, 35-45 per cent in debt securities and term deposits of banks, up to five per cent in money market instruments, 5-15 per cent in equity and related instruments and five per cent in asset-backed securities and units of infrastructure investment trusts.
