The Employees Provident Fund Organisation (EPFO) has started looking for options to park 3-5 per cent of its Rs 2.57-lakh-crore retirement fund in stock markets to earn better returns.
“Index-based strategy for investment in equities will be most suitable for EPFO’s need,” said an EPFO official in a presentation before the Finance and Investment Committee (FIC) recently.
The proposal, if accepted, could result in an inflow of Rs 13,000 crore into the capital market.
EPFO, which manages retirement funds of about 45 million depositors, has not invested in stock markets so far.
It was felt that alternative avenues were a must to enhance or maintain overall returns to subscribers as returns from fixed-income products would go down in future as evident in the developed economies.
Investment in equities provided a good hedge against inflation, unlike fixed-income securities, the official said in the presentation.
In March, FIC had turned down the finance ministry’s proposal to park EPFO funds in stock markets.
The finance ministry in August last year had suggested a new investment pattern to the EPFO ,under which it could park up to 15 per cent of its funds in companies listed on the Bombay Stock Exchange and the National Stock Exchange as well as the equity-linked schemes of Sebi-regulated mutual funds.
The proposal also faced opposition at the meeting of the EPFO’s apex decision-making body, the Central Board of Trustees (CBT), on July 4, particularly from unionists.
After the proposal was dumped by the CBT, Joint Secretary K P Krishnan in finance ministry made a suggestion for investing 3-5 per cent of EPFO’s corpus in stock index funds if the CBT members had reservations about investing in equities.
Krishnan had also said that long-term investments in the stock index funds would generate healthy returns with negligible risk.
Since a large number of trustees could not understand the proposal, a detailed presentation on the subject was sought.
After evaluating merit of this proposal on the basis of this detailed presentation by EPFO officials, the FIC would give its recommendations to the CBT for taking a final call on the proposal.
It is a general practice that the recommendations of the FIC are accepted by the CBT.
