EPFO looking to increase equity exposure

The labour ministry is mulling over investing 15% of the entire corpus of the Employees' Provident Fund Organisation (EPFO), which currently stands in excess of Rs 15 lakh crore, into equity.

If approved, this would translate into Rs 2.25 lakh crore of the provident fund money going into the stock market over the next few years, a top government official told ET.

Currently, EPFO invests 15% of its annual incremental inflow of about Rs 1.5 lakh crore into equity through exchange traded funds (ETFs), both on the Nifty and Sensex platforms. Its accumulated corpus stands at over Rs 15 lakh crore now and it has nearly 60 million subscribers.

There is also a proposal to increase the equity investment limit from 15% of the incremental inflow to 20% and then to 25% over the next few years. Even the Finance Investment and Audit Committee (FIAC) has vouched for this.

"Higher returns involve higher risks. So we have to look at ways to continue getting higher returns on PF deposits," the official added. The investment pattern notified by the finance ministry allows EPFO to invest up to 15% of its incremental inflow into equity.

The proposals, if firmed up soon, could be laid before the EPFO's central board of trustees at its meeting on July 29-30.

The government is of the view that in order to be able to give higher returns on PF deposits on a sustainable basis year after year, it is important that the retirement fund body invests more in equity as long-term returns on such investments are nearly double than on bonds and debt instruments, which currently constitute 85% of EPFO's investment.

EPFO had started investing in equities in 2015-16, starting with 5% of its annual incremental inflow in the first year, 10% in the second year and 15% in the subsequent years. It has made a cumulative investment of Rs 1.7 lakh crore, out of which over Rs 22,000 crore have been redeemed till March 31, 2022.

This has helped EPFO to continue crediting interest at a higher rate compared to FDs and other small savings schemes.

EPFO is crediting the interest at the rate of 8.1% for 2021-22 into its subscribers' accounts. This is lowest since 1977-78 when it had credited interest at the rate of 8.0%. It had credited 8.5% in 2020-21 and 2019-20.

The interest rate of 8.1% has been declared based on EPFO's estimated income for the year at Rs 76,768 crore and this will leave the retirement fund body with a surplus of Rs 450 crore.