7.8.15

EPFO makes Dalal Street debut

The Employees' Provident Fund Organisation (EPFO) started investing in the stock market for the first time in its history. The pension fund manager, which manages money on behalf of about 4.7 crore subscribers, will invest about Rs.5,000 crore in equities till March 2016 through the ETF route.Currently , EPFO manages assets worth about Rs.8.5 lakh crore.
Although the EPFO is allowed to invest up to 15% of its incremental inflows in stocks, Bandaru Dattatreya, minister of state for labour and employment, said that to begin with it would put in only 5% of its incremental flows, or about Rs.400 crore per month, reflecting a cautious approach by a first time equity investor.
Since 1951, when the organization was set up, the central decision-making body has refrained from investing in stocks because of the higher risks associated with it and had stuck to buying government securities and bonds issued by state-run companies. The pension fund manager, which manages money on behalf of about 4.7 crore subscribers, plans to put in about Rs.5,000 crore in equities till March 2016 through the ETF route.
ETFs are those funds whose portfolio exactly replicate the composition of an index and, hence, their returns too. Currently , EPFO manages assets worth about Rs.8.5 lakh crore, which is equivalent to about 12% of BSE's market capitalization.
K K Jalan, central provident fund commissioner, said that to start with EPFO will not invest in stocks directly but through SBI MF's nifty and sensex ETFs in the 75-25% ratio, but this could change later.
During the launch of EPFO's equity investment, Arundhati Bhattacharya, chairman, SBI, appreciated the organisation's decision to invest in equities and said that rate of interest paid by banks (in FDs) cannot always match the rate of inflation. The move by EPFO to invest in equities was “a decision taken in the interest of people who subscribe to EPFO“, Bhattacharya said.
Ashishkumar Chauhan, MD & CEO, BSE, said that investing in stock markets by pension funds is an internationally accepted practice and world over pension fund subscribers in many countries have got better returns by investing in equities.

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