In a big boost to equity markets, fund-flush Employees Provident Fund Organisation today entered Dalal Street through exchange-traded fund route with an initial corpus of Rs 5,000 crore, which could go up to nearly Rs 15,000 crore next year.
The first investment, announced here by Labour Minister Bandaru Dattatreya in the presence of top market participants, would be made through SBI Mutual Fund's two index-linked ETFs -- one to the BSE's Sensex and the other to NSE's Nifty.
Dattatreya said EPFO subscribers would get more than the 8.75 per cent return they get now by way of annual interest of their money and this would increase as the Fund increases its play in the market.
Significantly, the minister ruled out the possibility of the Fund entering the capital markets through other ETFs or investing in equities, understanding well the stiff opposition from labour unions.
"As of now there is no plan to invest in any other ETF other than the equity ETF," Dattatreya said.
"The Finance Ministry has allowed us to invest up to 15 per cent of incremental flow of the EPFO money into equities, from the present 5 per cent now of the Rs 1 trillion of investible money the Fund has.
"The present 5 per cent cap was taken after the consultants recommended to initially keep the EPFO investments in equities at level," Dattatreya said.
He was, however, soon to add that "even though the EPFO, with its Rs 6.6 trillion corpus will be investing only 5 per cent of its incremental flow by the end of the current fiscal, we will review the situation after that to decide whether we should increase it to 15 per cent next year".
It can be noted that for decades, the Finance Ministry had been pushing the Labour Ministry, that administers the EPFO, to enter the market. But nothing could be materialised due to strong opposition from the labour unions.
With increasing its investment limit to 15 per cent, the EPFO could become the second largest domestic institutional investor in capital markets after market giant LIC, which has invested over Rs 2 lakh crore in the market.
Last year LIC netted a smart gain of 15 per cent from the market at Rs 24,373 crore. The Corporation on an average puts in around Rs 50,000 crore into equities every year.
On the return from equity investments to subscribers Dattatreya said, "We expect that the return to the 4.67 crore subscribers of the EPFO will be definitely higher than the existing return of 8.75 per cent in the long-term".
