The Employees' Provident Fund Organisation (EPFO) on Thursday decided to credit units of exchanged traded funds (ETF) to the provident fund (PF) accounts of its over 45 million subscribers, giving them a window to monetize the fund's equity exposure.
EPFO has been investing in the stock market since August 2015 via ETFs. So far it was unclear how it would credit gains made from its exposure to equities to subscribers during a partial or full withdrawal.
"This spells out how the retirement fund manager plans to monetize its stock exchange exposure to benefit subscribers," M. Sathiavathy, labour secretary, said after a meeting of the Central Board of Trustees (CBT) of the EPFO.
This means EPFO subscribers will now get to see ETF units as well as the non-equity component of their retirement corpus in their account. They will have the freedom to withdraw the non-equity component and keep the ETF units in their account even after retirement or in the case of early withdrawal. If a subscriber wishes to withdraw both equity and cash components, he will have to mention this in his withdrawal application.
EPFO has, as of 31 October, invested over Rs32,298 crore in ETFs run by SBI Mutual Fund, UTI Mutual Fund and in one ETF comprising of central public sector enterprise stocks. It has earned an annual return of 21.87% but this is notional as EPFO fund managers have not liquidated the investments.
This is way more than the around 8.5% its debt investments earn. EPFO currently invests 85% of its annual accruals in the debt market and 15% in equities. It manages a retirement corpus of over Rs9 trillion.
Labour minister Santosh Gangwar said the exit policy for equity investments will benefit subscribers.
The retirement fund manager took the help of the Indian Institute of Management-Bangalore to devise a formula by which it could credit ETF units to subscribers, he added.
Though the CBT headed by the labour minister did not deliberate on whether EPFO will invest more than 15% of its annual accruals in equities, an official said that given the 21.87% return on such investments, higher equity exposure could not be ruled out.
The EPFO did not discuss the rate of interest for 2017-18 on Thursday and officials said this will be taken up in January. The interest rate for the current year has garnered a lot of interest after the central government slashed rates on several small savings schemes including the government provident fund and the public provident fund.
With an 8.65% payout, EPF yields higher interest than other provident funds which are now fetching 7.8%. But with debt investment fetching lower returns, EPFO is likely to lower its interest rate by up to 25 basis points, Mint reported on 6 July.
In arrangement with HT Syndication | MINT