EPFO mulls investing in equity market beyond Exchange Traded Funds

As per the current pattern of investment notified by the labour ministry in April 2015, retirement fund body can invest anywhere between 5 - 15 per cent of all its fresh accretions in equity markets

The Employees Provident Fund Organisation (EPFO) is looking to diversify its investment in the equity market beyond the Exchange Traded Funds (ETFs), sources familiar with the development said on Wednesday.

 

The investment committee — which is a sub-committee of the central board of trustees (CBT) — the apex decision-making body of the social security organisation, in its last meeting held earlier this month, directed consultant CRISIL to study the matter of diversification of investments under Category IV, which consists of equities and related investments.

 

“The investment committee directed the consultant, CRISIL, to study the matter in detail and bring out possible scenarios of diversification of investments in the equity market,” said a source.

 

Detailed queries sent to both the EPFO and CRISIL remained unanswered till the time of going to press.

 

As per the current pattern of investment notified by the labour ministry in April 2015, the retirement fund body can invest anywhere between 5 per cent and 15 per cent of all its fresh accretions in the equity market.

 

Under the notified pattern of investment in the equity market, the retirement fund body can invest in shares of body corporates listed on the BSE or NSE that have market capitalisation of not less than Rs 5,000 crore, or in derivatives with the shares traded in either of the two exchanges.

 

Besides, it can also invest in units of mutual funds (MFs) regulated by the Securities and Exchange Board of India (Sebi); ETFs/Index Funds that replicate the portfolio of either BSE Sensex Index or NSE Nifty 50 Index; ETFs issued by MFs constructed specifically for disinvestment of shareholding of the Government of India in body corporates; and exchange-traded derivatives (all regulated by Sebi) having the underlying of any permissible listed stock or any of the permissible indices, with the sole purpose of hedging.

 

Accordingly, the EPFO started with an investment of 5 per cent in equity through ETFs based on the BSE Sensex Index or NSE Nifty 50 Index in August 2015. Currently, the organisation invests its funds in equity instruments through ETFs based on the BSE Sensex Index or NSE Nifty 50 Index. Also, it has made investments in CPSE ETF and Bharat 22 ETF.

 

Latest data available from the draft FY24 annual report shows that at the end of March 2024, close to Rs 2.34 trillion has been invested by the social security organisation in ETFs, which is 9.49 per cent of its total investible corpus.   

In context 

- At present, EPFO invests its funds in equity instruments through ETFs 

  - It has made investments in CPSE ETF and Bharat 22 ETF

  - By March 2024, Rs 2.34 trillion has been invested by the social security fund in ETFs, which is 9.49% of its total investible corpus 

  - According to current pattern of investment notified by the labour ministry in April 2015, the retirement fund body can invest anywhere between 5 - 15% of all its fresh accretions in the equity markets