It’s been less than two years since the Employees’ Provident Fund Organization (EPFO) forayed into equity markets. Since then, the amount it has invested in equities through the exchange-trade fund (ETF) route, has risen from 5% to 10%.
There’s talk of this number increasing to 15% in the next fiscal year. In the latest Indian market news, the decision on hiking the investment cap on equities and equity-linked schemes has been postponed. However, the EPFO’s managing body, the Central Board of Trustees (CBT), is likely to raise the issue at its next meeting.
The provident fund manages a total of more than Rs 8 lakh crore worth of assets. It helps more than four crore active subscribers plan for their retirement by collecting contributions on behalf of private sector employees as well as their employers.
rs of the proposed boost in the equity cap to 15% point out that the EPFO doesn’t invest in direct equities – it invests in lower-cost and lower-risk equity index funds that offer Indians the potential of inflation-beating returns.
An increase in equity-linked allocation would mostly benefit younger workers who have a longer time frame to build their retirement corpus and recover from market gains and losses.
Yet labour unions and other critics of a higher cap on equity-linked investments are wary of following Western pension funds. They worry that the euphoria around equities tends to dip during bear phases.
These opponents caution that it’s reckless to move away from debt and income products, which provide guaranteed returns, toward ETFs, which are still relatively new and untested in the Indian market.
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