Equity-linked investments: EPFO appears to be like at elevating cap

The Employees’ Provident Fund Organisation (EPFO) has held a “preliminary discussion” on elevating the cap for investments linked to fairness from 15 per cent of incremental flows to 20-30 per cent, to shore up returns for the distribution of curiosity earnings to its six crore energetic subscribers, officers stated.

“This is a preliminary discussion for raising the investment cap for equity investments. Last 2-3 months, discussions have been happening about what to do to provide better interest this fiscal and coming financial years. Because in the last 4-5 years we cut down on various risky instruments which were giving higher returns and with high risks. Earlier, such investments would earn 9-10 per cent and shifting these to the debt side would yield not more than 6-7 per cent. So it’s about putting money in the right baskets. It’s very important to invest some percentage in high gain opportunities with due caution and control in these turbulent and testing times of the economy,” KE Raghunathan, a member and Employees’ consultant of the EPFO’s Central Board of Trustees (CBT) stated.

The Finance Investment and Audit Committee (FIAC) had met on May 24 in Mumbai to debate funding patterns and proposals for revision of pointers and numerous choices of mountain climbing the fairness funding restrict with the fund managers.

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“In the 85:15 proportion of investments of EPFO with debt and equity (respectively), fund managers were asked about the rate of return for both type of investments and how can a higher rate of return be achieved if the equity investment cap is raised to 20 or 25 or 30 per cent from 15 per cent at present,” one other CBT member stated.

The CBT is more likely to take up this situation for dialogue at its subsequent assembly, which can occur on the finish of this month, the individual stated.

The EPFO can make investments as much as 15 per cent of funding in fairness, as per the sample of funding notified by the Centre and inside pointers. It invests solely in exchange-traded funds (ETFs) and never particular person shares.

The fee of return from investments of EPFO assumes significance because the retirement fund physique opted to decrease its rate of interest for 2021-22 to eight.1 per cent, a four-decade low. The Finance Ministry, which ratifies the EPF rate of interest beneficial by the CBT, has over time questioned the excessive rate of interest provided by EPFO. It had questioned the 2019-20 fee and the 2018-19 fee of 8.65 per cent as effectively, moreover the EPFO’s publicity to IL&FS and comparable dangerous entities.

In September 2020, the CBT had beneficial splitting the cost of the curiosity for FY20 into two components, citing “exceptional circumstances arising out of Covid-19.”

However, January 2021 onwards, the EPFO started to credit score the curiosity in a single go.

The retirement fund physique earned web curiosity of Rs 72,811 crore in FY21 on investments together with equity-related investments from contributions from the institutions managed by it, as per EPFO’s newest annual report. The organisation’s return on debt devices in 2020-21 was 6.87 per cent. It had invested Rs 7,715 crore in fairness until June 30 final 12 months and Rs 31,025 crore in FY21.