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EPFO likely to raise equity investment to 10%

Source | The Financial Express

Retirement fund body EPFO is likely to double the proportion of its investment in exchange traded funds (ETFs) for this fiscal to 10 per cent at its trustees meet on Tuesday in line with an expert panel’s recommendations.

EFPO, at present, is investing 5 per cent of investible deposits in ETFs despite opposition by labour unions.

“The Employees’ Provident Fund Organisation (EPFO) is most likely to double the percentage of its investment in ETFs to 10 per cent as recommended by an expert panel in its trustees meeting on July 26,” a source said.

The panel constituted by EPFO’s Finance Audit and Investment Committee (FAIC) has recommended the allocation to equity can be made 10 per cent this fiscal.

It was of the view that current allocation of 5 per cent incremental flows to equity may not be sufficient for meaningful contrition to overall portfolio return of the EPFO.

The panel pointed out that at present the EPFO’s equity investment constitute less than 1 per cent of the total corpus compared with the global average of around 30 per cent.

The experts also suggested that if the body will invest 5 per cent of its investible deposits in equity every year then it will take 15 years for these investments to become 5 per cent of the EPFO’s total investment.

They added if 10 per cent is invested into equities then it will take just five years for these investments to become 5 per cent of the total portfolio.

The report of the group to examine alternate strategy for investments in ETFs will be placed before the EPFO trustees on Tuesday.

Earlier, Labour Minister Bandaru Dattatreya had indicated that the proportion of EPFO’s equity investment will be increased.

The ministry had also notified a pattern of investment on April 23, 2015, which allows investment in equity and related investments from 5 to 15 per cent.

The EPFO is estimated to have Rs 1.35 lakh crore as investible deposits in the current fiscal.

However, the EPFO’s apex decision making body the Central Board of Trustees headed by the Labour Minister had decided to invest only 5 per cent in ETFs to start with last year.

Total amount invested by EPFO in ETFs is Rs 7,468 crore as on as on June 30. The absolute return on the investment so far is 7.45 per cent.

The member of the expert group were India Index Services & Products Ltd, SBI Mutual Funds Management Pvt Ltd, LIC, Asia Index Pvt Ltd and National Institute of Securities Markets.

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