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BOON FOR 4.5 CRORE SUBSCRIBERS - EPFO may Give Option to Raise Equity Exposure

BOON FOR 4.5 CRORE SUBSCRIBERS - EPFO may Give Option to Raise Equity Exposure 
Buoyed by higher returns on investment in equities, retirement fund body EPFO is mulling giving its subscribers an option to set aside a higher proportion of their provident fund money for this asset class.The proposal, if it goes through, will fetch higher returns to 4.5 crore EPFO subscribers in the current declining interest rate regime where returns on provident fund accumulations are bound to see a downward trend, much in sync with other small saving schemes.
Currently, 15% of PF contribution is invested by EPFO in exchange-traded funds and 85% in debt instruments like government securities.This would require significant alteration in the investment pattern of EPFO notified by the finance ministry from time to time, a senior government official told ET on condition of anonymity, as the proposal is still at an initial stage.
“Giving subscribers the choice of investment for their provident fund money will make the EPFO scheme more lucrative,“ the official added. The finance ministry had in 2015 directed EPFO to invest 515% of its incremental income into equities. Following this, in the first year itself, EPFO invested 5% in ETFs and this was raised to 10% and 15% in the subsequent years.
The cumulative return on EPFO's investment in equity was 13.72% until May in the two years since it began putting money in ETFs. EPFO declared an interest payout of 8.75% in FY15, 8.8% in FY16 and 8.65% in FY17.EPFO has been raising the amount it invests in equities since 2015, when it started with 5% of the corpus. Its investment in FY16 was  Rs 14,982 crore or 10% Rs  6,577 crore, rising to  of its incremental corpus in the following year.
This year, the investment limit has been raised to 15% of the estimated Rs1.4 lakh crore incremental corpus, which translates into about Rs  20,000 crore being invested in ETFs.The investment in equity has been opposed by trade unions on the grounds that returns are not assured and in the absence of any sell-off policy, the returns remain on paper and do not bring monetary benefits to subscribers.
There has been competition between EPFO and NPS to bag highest number of subscribers. While NPS is relatively new and has a fraction of subscribers compared to EPFO, the labour ministry is ensuring that it not only improves the services of EPFO but also diversify its investments, so that the returns are higher. “This will help subscribers to stay put while no members will come into its fold,“ the official added.

The Economic Times, New Delhi, 06th October 2017

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