EPFO proposes investment in ETFs for 5-10 yrs

The move will provide better returns to its six crore subscribers.

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The Employees’ Profident Fund Office (EPFO) is considering making long-term investments in stocks for a period of five to 10 years, in a bid to ensure better returns for its subscribers.

A panel has recommended that instead of short-term investments for about three years, the EPFO should make investments in the exchange traded funds (ETF), which is an equity-linked scheme, for five to 10 years so as to obtain greater returns.

The panel’s report was part of the agenda of the meeting of EPFO’s advisory body, the Finance and Investment Committee (FIC), which was held on September 19, 2018.

Any further discussion on the report has been postponed till the next meeting expected to take place in the first half of October.

The panel comprised five members, with the Financial Advisor and Chief Account Officer as the head, and CEO of HDFC Mutual Fund also on its board.

In February, the EPFO sold a part of its investments in ETF worth Rs 2,886 crore to maintain a bigger rate of interest for its six crore subscribers for 2017–18. However, later, it decided to reduce the interest rate from 8.65 per cent (in 2016-17) to 8.55 per cent for the last fiscal. This was slightly lower than the interest rate in 2015-16, which was 8.8 per cent.

That ETF sale earned the EPFO a return of around 16 per cent at Rs 1,054 crore. EPFO has been investing in ETF since 2015, and presently, has invested more than Rs 40,000 crore in the same.

EPFO is in the process of creating a software to credit the ETF credits in their EPF account. The employees will have two parts in the account—cash and ETF. The workers can also choose to liquidate the ETF while withdrawing. However, EPFO will sell the ETFs in the market for the withdrawal claim settlements of the subscribers.

The EPFO had intended to begin crediting ETFs into the subscribers’ account by July 2018, but could not because the software-development process is taking time.

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