The Employees’ Provident Fund Organisation (EPFO) is contemplating offering age-based and risk profile-based investment options to its provident fund and pension scheme subscribers, reported The Economic Times.
Once this option is available, EPFO would invest a higher percentage in equity for the younger subscribers to deliver higher returns while those nearing retirement would be largely invested in safe debt.
This is part of the EPFO’s long-term roadmap for expanding its investment portfolio and earning higher returns for subscribers.
Currently, EPFO can invest up to 15 per cent of its funds into equities through exchange-traded funds (ETFs) based on Nifty 50, Sensex, Central Public Sector Enterprises (CPSEs) and Bharat 22 Indices.
The EPFO accumulated corpus stands at over ₹15 trillion now and it has nearly 60 million subscribers.
The plan is to initially separate investments of provident and pension deposits, a senior government official said.
“This could further be differentiated on the basis of age and risk profile with investment more in equity for younger members and in other safe instruments for the elderly,” the official said, reported ET.
Pension funds can be invested for a longer term in infrastructure and real estate to fetch higher returns, the official added.
The EPFO has managed to give a higher return than small savings or banks but now feels that sustaining a high rate of interest with a conservative investment pattern will not be possible.
The EPFO started investing in equities in 2015-16, starting with 5 per cent of incremental inflow in the first year, 10 per cent in the second year, and 15 percent in the subsequent years.
EPFO has credited the interest at the rate of 8.1 percent for 2021-22, which is the lowest since 1977-78 when it had credited interest at the rate of 8.0 percent. It had credited 8.5 percent in 2020-21 and 2019-20.