Experts have pointed out a big flaw in the way the EPFO is valuing the equity investments by the EPF. Till it used to invest only in bonds and deposits, it was not difficult to value the EPF portfolio. The bonds were accounted for at face value and the interest earned on them was credited to the PF accounts of individual members.
What are the new norms of EPFO for investing in equity? As per the new norms, EPFO can invest a minimum of 5% and can go upto 15% of its funds in equities. The fund has decided to go with the 5% of the incremental corpus equity as of now and increase it further to 15%. It will be using the Exchange traded funds (ETFs) route to enter the equity market.
How did EPFO invest in ETFs in FY22? The investment in ETFs is made based on Nifty 50, Sensex, Central Public Sector Enterprises (CPSEs) and Bharat 22 Indices. The body had invested Rs 43,568 crore in FY22, Rs 32,000 crore in FY21 and some Rs 31,500 crore in FY20 in ETFs. The objective of EPFO investments in equities was to provide good returns to its subscribers in the long term.
Should EPF invest in equity ETFs? Most financial experts agree with the government’s viewpoint. “Globally, about 30% of retirement savings are allocated to equities. In India, the EPF has started investing in equity ETFs only recently. Though late, it is certainly a step in the right direction,” says Jiju Vidyadharan, Head of Funds and Fixed Income Research at Crisil.
What is the source of EPFO’s capital gains? A majority of EPFO’s earnings come from the interest accrued from investments in debt instruments. But as a result of the EPFO diversifying its investment portfolio, the retirement fund body has seen a rise in earnings from the capital gains from equity in recent years.
What are the new norms of EPFO for investing in equity?
What is the objective of EPFO investments in equities? The objective of EPFO investments in equities was to provide good returns to its subscribers in the long term. An analysis shows that equity markets have given higher returns than the debt markets.
How did EPFO invest in ETFs in FY22? The investment in ETFs is made based on Nifty 50, Sensex, Central Public Sector Enterprises (CPSEs) and Bharat 22 Indices. The body had invested Rs 43,568 crore in FY22, Rs 32,000 crore in FY21 and some Rs 31,500 crore in FY20 in ETFs. The objective of EPFO investments in equities was to provide good returns to its subscribers in the long term.
How can I invest in the equity market? It will be using the Exchange traded funds (ETFs) route to enter the equity market. An ETF basically is an index fund that is traded on exchange just like stocks. An index fund is basically a basket of securities that track the prices of companies of the underlying index.