Employees’ Provident Fund Organization is looking to increase its equity exposure and invest the redemption proceeds from its investments in exchange-traded funds back in equity or related instruments.
Explain that EPFO invests the amount deposited in the PF account holder’s account in many places and gives a part of the earnings from it to the account holders as interest.
The retirement fund body will soon seek approval from the finance ministry to invest the proceeds from ETFs in any recognized asset class to maximize returns. A proposal in this regard was approved by the Central Board of Trustees of EPFO in its meeting in the last week of March, stating that it is proposed that the proceeds of ETF investments may be reinvested in equity and related instruments. Which will increase the equity component in the portfolio to the permissible limit.
EPFO invests its money based on the investment pattern notified by the Ministry of Finance. Under the current guidelines, the EPFO can invest between 5% and 15% of the corpus annually in equity through ETFs. While the rest invests in debt securities.
According to the retirement fund body, the share of equity investment in the total Employees’ Provident Fund Fund as of January 2023 was only 10% against the permissible limit of 15%. EPFO started investing in equity through ETFs in 2015-16 with 5% exposure. The equity investment limit was raised to 10% in 2016-17 and 15% in 2017-18. Investments in ETFs as on March 31, 2022 were ₹1,01,712.44 crore, ie 9.24% of the total investment of ₹11,00,953.66 crore.
EPFO redeems ETF units from time to time to earn more income under Employees Provident Fund Scheme. Since, ETF redemption proceeds are treated as income, only 15% of such redemption proceeds are currently invested in ETFs and the rest in debt instruments. In the financial year 2022-23, EPFO redeemed ETF units purchased during the calendar year 2018 for ₹ 15,692.43 crore.