The Employees' Provident Fund Organisation (EPFO) is mulling a proposal to raise its investment limit in equities to as much as 25 percent of incremental flows from the existing 15 percent, sources told Economic Times. The higher exposure to stocks is aimed at helping the apex retirement body bridge the shortfall in returns with investment in debt securities struggling to help it reach targets, the report by Economic Times added.
"The Finance Investment and Audit Committee met nearly two weeks ago to discuss the matter. The proposal by the committee will be taken up at a meeting of the EPFO Central Board of Trustees (CBT) likely in the last week of June. The recommendation will then be sent to the labour and finance ministries for final approval," sourced informed ET.
The investment committee has proposed to raise equity investment to up to 25 percent of daily inflows in two phases, Prabhakar Banasure, a CBT member told ET; first to 20 percent and then to 25 percent in the second phase.
"We believe equities will likely give handsome returns in the next few years," said Banasure adding that existing other categories' investment yields are not able to generate the desired returns on investments.
The report further noted that EPFO officials met leading mutual funds recently to gather feedback on possible investment avenues in equity schemes.
It is important to noted that the EPFO invests in equities through Exchange Traded Funds (ETFs) tracking the Sensex and Nifty operated by SBI Mutual Fund and UTI Mutual. EPFO does not invest in actively managed equity mutual fund schemes or directly in stocks.
As per the report, at the 15 percent limit, EPFO invests about ₹1,800-2,000 crore in these ETFs. The central provident fund body is said to be getting total flows of ₹600 crore every day on average, of which it uses approximately ₹200 crore to settle claims. This translates into ₹12,000 crore a month for various investments. If the equity investment limit increases to 25 percent, EPFO could potentially pump about ₹3,000 crore into the stock market every month, the report highlighted.