The Employees’ Provident Fund Organisation (EPFO) in its board meeting has not taken up the proposal to raise the equity investment limit from 15 per cent to 20 per cent. The 231st meeting of the Central Board of Trustees took place on Friday and Saturday. Currently, up to 15 per cent of the total PF (provident fund) corpus can be invested in equities.
“The proposal to enhance investment in equity or equity-related instruments was not taken up in the Central Board of Trustees 231st meeting on July 29 and 30,” according to a PTI report quoting EPFO trustee Harbhajan Singh Sidhu. It added that the proposal was opposed by employees’ representatives in the executive committee meeting of the EPFO earlier this week.
He was of the view that there should be more detailed deliberation on the proposal before going ahead to amend the EPFO’s pattern of investment to increase the allocation of investible funds in equity-related instruments to 20 per cent from the existing 15 per cent in view of its volatile nature of the stock markets.
The proposal to revise the limit to 20 per cent has already been vetted and approved by the EPFO advisory body Finance Audit and Investment Committee (FAIC).
The FAIC’s recommendation was to be taken up by the EPFO apex decision-making body CBT for consideration and approval. Earlier this month, in a written reply to the Lok Sabha, Minister of State for Labour and Employment Rameshwar Teli had said, “FIAC, a sub-committee of CBT, EPF, has recommended for the proposal to increase investment in equity and related investments in category IV of the Pattern of Investment from 5-15 per cent to 5-20 per cent for consideration of CBT, EPF.”
The EPFO started investing in exchange-traded funds (ETFs) in August 2015, putting 5 per cent of its investible deposits in stock-linked products. It was raised to 15 per cent for the current fiscal. Trade unions have been opposing any investment in stock markets by the EPFO as these are not backed by the government guarantee.
In the written reply, Teli had also said the notional return on EPFO equity-related investments rose 16.27 per cent in 2021-22 from 14.67 per cent in 2020-21. The reply also showed that the notional rate of return on equity-related investment of the EPFO was negative at (-) 8.29 per cent in 2019-20 due to the impact of COVID-19.
Several media reports also say that the equity exposure of the EPFO will be raised to 25 per cent, after raising it to 20 per cent. If the equity investment limit rises to 25 per cent, the EPFO may pump invest Rs 3,000 crore in the stock market every month.
Last month, the government approved a four-decade-low EPF interest rate of 8.1 per cent on employee provident fund deposits for 2021-22. The decision will impact about five crore subscribers of the EPFO.
In March, the retirement fund body had decided to pay an interest rate of 8.1 per cent on EPF amount for 2021-22, compared with 8.5 per cent earlier. The 8.1 per cent EPF interest rate is the lowest since 1977-78, when it stood at 8 per cent.
(With inputs from PTI)
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