For the first time in its 64-year history, the Employees Provident Fund Organisation will invest in the equity market by putting in ₹5,000 crore in the Nifty and Sensex ETFs (Exchange Traded Fund) of SBI Mutual Fund.

The EPFO will invest 75 per cent of the targeted amount in the mutual fund’s Nifty ETF and the rest in the Sensex ETF at regular intervals.

The EPFO, which manages a corpus of ₹6.5-lakh crore of pension fund of about five crore subscribers, also plans to invest in ETFs of Central Public Sector Enterprises as and when the government divests through this route.

More investments, gradually

Starting with an initial allocation of five per cent of its annual incremental flow of ₹1-1.5 lakh crore, the EPFO will invest more into equity if the returns are satisfactory. It proposes to raise the allocated amount to 15 per cent of the annual incremental flow over the next two years.

Bandaru Dattatreya, Minister of State for Labour and Employment, said though there were initial apprehensions over investing hard-earned pension money of employees in the equity market, the track record has proved beyond doubt that over a 10-15 year period the returns from equity are always better than those from debt instruments.

“The baby step towards the equity market would not have happened but for the reform-oriented government. If foreign pension funds can invest in our equity market and make money, why not we take advantage,” said Dattatreya. Asked about the returns the EPFO subscribers can expect, he said it is too early to take a call but it would definitely be higher than the 8.5 per cent achieved through the current investment avenues.

Apart from the long-standing relationship with SBI, the EPFO chose SBI Mutual Fund as it halved the charges to five paise for investment of every ₹100.

“We may rationalise the charges for other investors in ETF also if the fund-flow improves,” said Dinesh K Khara, Managing Director and Chief Executive Officer, SBI Mutual Fund.

Related Topics
comment COMMENT NOW