In a move that is likely to increase the risk for your provident fund corpus, the EPFO (employee provident fund organisation) is planning to increase equity exposure for its investments.?
The EPFO is considering enhancing its equity exposure and reinvesting redemption proceeds from its investments in exchange-traded funds back in equity or related instruments, people familiar with the move said, as per an ET report.
The retirement fund body EPFO will soon approach the finance ministry to seek its clearance for investing the proceeds from ETFs in any permissible asset class to maximise returns.
A proposal in this regard has already been approved by EPFO's central board of trustees in the last week of March, as per the minutes of the meeting where they made the decision.?"It is proposed that proceeds of ETF investments may be re-invested in equity and related instruments which will increase the equity component to the permissible limit in the portfolio," the minutes read.
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For the uninsured, the EPFO?invests its funds based on the investment pattern notified by the finance ministry. As per the report,?under current guidelines,?between 5% and 15% of the annual incremental deposits received by the EPFO can be invested in equity through ETFs, while the balance is invested in debt securities. There are no guidelines for utilising its ETF redemption proceeds.??
According to the retirement fund body, the share of equity investments in the total Employees' Provident Fund corpus was only 10% as of January 2023, as against the permissible limit of 15%.?The EPFO reportedly started investing in equities through ETFs in 2015-16 with a 5% exposure. The equity investment limit for EPFO was raised to 10% in 2016-17 and 15% in 2017-18.
Its cumulative investment in ETFs till March 31, 2022, stood at ?1,01,712.44 crore, or 9.24% of its total investment of ?11,00,953.66 crore.
The EPFO redeems the ETF units on a periodic basis in order to generate income under the?EPF?scheme. Since the proceeds of ETF redemption are treated as income, only 15% of such redemption proceeds are currently invested in ETFs, and the remainder is invested in debt instruments. In FY 2022¨C23, as per the report, the EPFO redeemed ETF units purchased for ?15,692.43 crore during the calendar year 2018.
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