Marking its maiden entry into stock market, retirement fund body EPFO today announced its first equity investment through Exchange Traded Funds benchmarked to key indices Sensex and Nifty and promised to invest more than the current limit of Rs 5,000 crore from the next year.
The first investment, announced here by Labour Minister Bandaru Dattatreya in the presence of top market participants, would be made through SBI Mutual Fund's two index linked ETFs -- one to the BSE's Sensex and the other to NSE's Nifty.
The minister said Employment Provident Fund Organisation (EPFO) will initially put only 5 per cent of its incremental fund flow, which would be around Rs 5,000 crore, but the cap could be increased to 15 per cent next year.
The return from the ETF investment will be more than the 8.75 per cent the EPFO offers to subscribers now, he said.
"We expect that the return be given to 4.67 crore subscribers of EPFO, which started investing 5 per cent of its incremental fund of Rs 1,00,000 crore, to be more than the existing return of 8.75 per cent," the minister told reporters after making a formal announcement here today.
Apart from Dattatreya, the event was attended by Sebi's whole-time member S Raman, SBI chairperson Arundhati Bhattacharya, BSE chief Ashish Kumar Chauhan and the Central PF commissioner K K Jalan.
Chauhan said that investment of pension funds in stock markets is an internationally accepted practice and citizens world over have got better returns from such investments.
NSE chief Chitra Ramkrishna, who was not present at the event, said in a statement that EPFO's entry will unlock savings into nation building and other entities may consider similar initiatives.
A press release from SBI Mutual Fund, however, named Ramkrishna among those present on the occasion.
The SBI-ETF Nifty and SBI Sensex ETF are the two index-linked ETF schemes chosen from SBI Mutual Fund.
The Index-based ETFs are universally considered amongst the safest investment avenues to help PF members accumulate robust retirement corpus over a long-term.
"Even though the EPFO, with its Rs 6.5 trillion corpus will be investing only 5 per cent of its incremental flow by the end of the current fiscal, we will review the situation after that to decide whether we should increase it to 15 per cent next year," Dattatreya said.
With the possible increase in investment limit to 15 per cent of total incremental funds from next year, EPFO could become the second largest state-run investor after insurance giant LIC, which put around Rs 50,000 crore of funds every year in equities.
The EPFO's entry into stock market was hanging fire due to stiff opposition from labour unions.
On the investment pattern, Central PF Commissioner K K Jalan said, "While 75 per cent of the incremental fund will be invested in NSE ETF, the remaining will be made in the BSE ETF. We may also look at investing in the CPSE ETF, whenever it happens."
He also hinted that the investment in equities may go up to Rs 7,000-8,000 crore in case some of the other organisations like ONGC, whose fund is also managed by the EPFO, too decide to invest into equities.
Later, financial adviser of EPFO Sanjay Kumar told PTI that, "SBI MF has reduced its fund management charges for EPFO's investment into equities to 7 bps which includes 2 bps for education as levied by Sebi, thus effective fund management charge in our case will be at 5 bps."
SBI MF managing director and chief executive Dinesh Khara said, "It is a very good substitute when compared to FII. Long-term retirement money coming to equity market will bring stability to the market in the long term."