EPFO is Gung Ho on Equity : likely to enhance equity exposure to 20%

EPFO is Gung Ho on Equity; likely to enhance equity exposure to 20%

Increasing allocation into equities will allow EPFO subscribers to participate in the stock market materially. The large corpus under EPFO will also raise the demand for equity and bring in added liquidity. All in all, this is good for your equity wealth.

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Updated on 20 Jul, 2022

What’s the News?

EPFO is likely to enhance the equity investment limit.

What does that mean?

The retirement fund body Employees Provident Fund Organization (EPFO) is likely to approve a proposal to enhance its investments in equities to up to 20%.

Currently, EPFO can invest between 5% to 15 % of the investible deposits in equity or equity-related instruments.

The proposal to revise the limit to 20% has been vetted and approved by the Employees’ Provident Fund Organization’s (EPFO) advisory body, the Finance Audit and Investment Committee (FAIC). The proposal is expected to be taken up by the EPFO Central Board of Trustees (CBT) for consideration and approval.

EPFO began investing in equity in 2015 with 5% of its investible fund. The exposure was raised to 15 % for the current financial year.

The investment vehicle of choice for the EPFO, thus far, has been Index Linked ETFs. The notional rate of return on equity-related investment of the EPFO was negative at -8.29% in 2019-20 due to the impact of COVID-19, and the return on investment from EPFO’s equity investment was 16.27%, as of March 2022

How does that impact your wealth?

The employee provident fund is a popular saving scheme where the corpus tends to have a very long investment horizon. Therefore, increasing allocation into equities will also allow EPFO subscribers to participate in the stock market materially.

In addition, the large investment corpus with the EPFO and the regular flows into the same will bring in additional liquidity and demand to Indian Equities – especially the large cap stocks.