Equity Investment: EPFO ​​Considers Raising Equity Investment Limit to 25% to Address Yield Gap

Mumbai: The Employees Provident Fund Organization (EPFO) is weighing a proposal to raise its equity investment limit to up to 25% of additional flows from the existing 15%, people familiar with the matter have said. The higher exposure to equities is intended to help the apex pension fund fill the yield gap with investments in debt securities that are struggling to help it achieve its goals.

The Finance, Investment and Audit Committee met nearly two weeks ago to discuss this. The committee’s proposal will be taken up at a meeting of EPFO’s Central Board of Directors (CBT) probably the last week of June. The recommendation will then be sent to the ministries of labor and finance for final approval, the people quoted above said.

Agencies

The investment committee has proposed to increase equity investments up to 25% of daily inflows in two phases, CBT member Prabhakar Banasure told ET – first to 20% and then to 25%. in the second phase. The roadmap and details of the higher investment limits could not be determined. EPFO did not respond to ET’s questions.

Meetings with MFs

EPFO officials recently met with major mutual funds to get feedback on equity program investment opportunities, the people quoted above said. EPFO invests in stocks through exchange-traded funds (ETFs) that track the Sensex and Nifty indices operated by

UTI Mutual and Mutual Fund. EPFO does not invest in actively managed equity mutual funds or directly in equities.

At the 15% limit, EPFO ​​invests around ₹1,800-2,000 crore in these ETFs. The central provident fund body is said to receive total flows of ₹600 crore each day on average, of which it uses about ₹200 crore to settle claims. This translates to ₹12,000 crore per month for various investments. If the equity investment limit increases to 25%, the EPFO ​​could potentially inject around ₹3,000 crore into the stock market every month.

“We think equities are likely to perform well over the next few years,” Banasure said. “The investment returns of other existing categories are not able to generate the desired investment returns.”

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