Market value of holdings rose to Rs. 23,431 cr., giving absolute returns of 11.31%
The proposal to deploy more retirement savings in the stock market will be taken up by the Employees’ Provident Fund (EPF) board of trustees on May 27.
“The plan to increase investments in exchange traded funds (ETFs) will be one of the [items on the] agenda of our next board meeting,” Union Labour and Employment Minister Bandaru Dattatreya told The Hindu .
“Our plan to increase investments in ETFs received a lot of criticism but we have attained maximum returns of more than 11% so far which will further go up in future,” he said.
“We are following a cautious approach,” said the minister who chairs the central board of trustees of the Employees’ Provident Fund Organisation (EPFO). Mr Dattatreya was speaking on the sidelines of a seminar on global trends in social security organised by the PF office.
Central Provident Fund Commissioner V.P. Joy said the EPFO, which began its foray into the Dalal Street by investing 5% of its fresh inflows into ETFs from August 2015, had invested Rs. 21,050 crore in equity-linked instruments by April 30 this year.
The market value of these holdings had risen to Rs. 23,431 crore giving an absolute return of 11.31% — far higher than the prevailing annual payout on EPF savings and the returns on the rest of its predominantly fixed-income portfolio. However, these higher returns are yet to reflect in the annual returns credited to EPF accounts due to accounting difficulties.
“The gains on ETF investments are only notional gains and the CAG [Comptroller and Auditor General] has advised that notional income cannot be used for updation (of income) till the time the investments are liquidated and gains credited to EPF accounts,” Mr. Joy had informed the trustees last December.
The EPFO also invested Rs. 1,808 crore in Central Public Sector Enterprises (CPSE) ETFs whose market value rose to Rs. 2,143 thereby giving a return of 18.5%. The Central government in January this year decided to roll out the second tranche sale of the CPSE ETF as part of its disinvestment drive.
EPFO’s initial 5% allocation towards ETFs was enhanced to 10% in September 2016. As per a fresh investment pattern notified by the Labour Ministry in April 2015, EPFO could invest up to 15% in equity and its related instruments — provided its board agrees at its upcoming meeting.
Reference: The Hindu