The government has permitted the Employees Provident Fund Organisation (EPFO) to invest proceeds arising out of the sale or redemption of investments in equities and related investments. However, the condition remains that it should not exceed the prescribed limit.

EPFO investments in equity are through Exchange Traded Funds (ETF) only and as of July 31, the total investment is more than ₹2 lakh crore. There are over 6.5 crore susbcribers of EPFO.

A new clause, in this regard, has been deemed to have been inserted with effect from August 24, 2023, a government notification said. The insertion has been made in the guidelines for investment prescribed two notifications dated April 23, 2015, and May 29, 2015, respectively. While the April 23 notification talks about the investment of all incremental accretions belonging to the EPFO, the May 29 notification defines the instruments and limits for the investment.  Change in these two notifications has been made through the latest notifications, dated September 1.

Earlier, paragraph 4 of 2015 notifications prescribed that proceeds arising out of the exercise of put option, tenure asset switch or trade of any asset before maturity can be invested in any of the permissible categories in such a manner that at any given point of time the percentage of assets under that category should not exceed the maximum limit prescribed for that category and also should not exceed the maximum limit prescribed for the sub-categories, if any. However, an asset switch because of any RBI-mandated government debt switch would not be covered under these restrictions.

Now, after “Proceeds arising out of”, the words “sale or redemption of investment in equities and related investments,” have been added. As of date, EPFO can invest minimum of 5 per cent and maximum of 15 per cent in equities and related instruments.

Under the guidelines related to equities and related Investments, EPFO can invest in shares of companies listed on BSE or NSE which have a market capitalisation of ₹5000 crore or more and derivatives with the shares as underlying traded in either of the two stock exchanges. Investment can also be made in mutual funds which have a minimum of 65 per cent of their investment in BSE or NSE listed equity.

Another option is Exchanged-Traded Funds (ETFs)/Index Funds that replicate the portfolio of either the BSE Sensex Index or the NSE Nifty 50 Index. ETFs issued by SEBI-regulated mutual funds constructed specifically for disinvestment of shareholding of the Government of India in body corporates can also be used for option. Another instrument is Exchange traded derivatives having the underlying of any permissible listed stock or any of the permissible indices, with the sole purpose of hedging. However, it should not exceed 5 per cent of the total investment in equity and equity related instruments.

It needs to be noted here that EPFO does not invest directly in individual stocks including stocks of any blue-chip company. EPFO invests in Equity markets through ETFs replicating BSE-SENSEX and NIFTY-50 indices. EPFO has also invested from time to time in ETFs constructed specifically for disinvestment of shareholding of the Government of India in body corporates.

As of December 31, 2022, the total corpus of various funds managed by EPFO as of 31.03.2022 was Rs. 18.30 lakh crore, out of which over 91 per cent investment in Debt instruments, with the remaining in ETF Investments. The retirement body has invested a total of over ₹2.01 lakh crore in ETFs since 2018-19 till July 2023.

Related Topics
comment COMMENT NOW