EPFO plans to increase equity investment limit to 25% to make up shortfall
The Employees Provident Fund Organization (EPFO) is considering a proposal to increase its equity investment limit to 25% of incremental flows from the existing 15%, according to a report in the Economic period. The capital investment will be increased first to 20 percent, then to 25 percent in the second phase.
Earlier on Saturday, the government approved an 8.1% interest rate on ETH deposits for 2021-22, the lowest in four decades, for around 50 million subscribers to the EPFO.
EPFO’s idea of gaining greater exposure to equities appears to be aimed at helping fill the gap in returns with investments in debt securities
According to ET’s report, the Financial Investments and Audit Committee met two weeks ago to discuss the issue of equity investments. The report says the proposal will be considered in June last week at a meeting of EPFO’s Central Board of Directors (CBT). The recommendation will be sent to the Ministry of Labor and the Ministry of Finance for final approval.
EPFO invests around Rs 1,800-2,000 crore in some exchange traded funds at its current level of 15%. According to the ET report, EPFO receives total flows of Rs 600 crore every day on average and uses around Rs 200 crore to settle claims. EPFO officials met with mutual fund managers to assess the possibility of investing in equity programs.
The current EPF interest rate of 8.1% is the lowest since 1977-78, when it was 8%. The 8.5% interest rate on ETH deposits for 2020-21 was decided by the CBT in March 2021. It was ratified by the Ministry of Finance in October 2021. Subsequently, the EPFO has instructed field offices to credit interest income at 8.5 percent. cent for 2020-21 in the account of subscribers.