INSUBCONTINENT EXCLUSIVE:
The Employees' Provident Fund Organisation (EPFO) has initiated discussions with the finance ministry regarding the potential reinvestment
of its entire redemption proceeds from exchange-traded funds (ETFs) back into the stock market
Sources familiar with the matter told ET that the EPFO has put forth strategies aimed at optimizing equity returns while safeguarding gains
against market volatility.The EPFO's apex decision-making body, the central board of trustees, authorized the organization during its late
March meeting to consider reinvesting the redemption proceeds derived from its ETF investments
However, the implementation of this initiative, which would increase the inflow of retirement funds into equities, necessitates approval
from the finance ministry
According to the investment guidelines set by the finance ministry, the EPFO can allocate between 5% and 15% of its income towards equities
and related investments.Fixed Income Mutual Funds Vs Fixed Deposits: What should you do in high interest rate scenario?The EPFO is actively
advocating for revisions to the existing ETF investment guidelines
Specifically, the organization has suggested a shift to daily redemption of ETF units, linked to the return benchmark of government
securities, as opposed to the current periodic system
This proposition also entails benchmarking ETF returns to the average five-year performance of the Sensex, a departure from the prevailing
four-year comparison, as disclosed by officials familiar with the situation.Upon reaching a consensus between the finance and labour
ministries, the EPFO will present the final proposal to the finance ministry for its endorsement
An official told ET that the EPFO asserts the necessity for the holding-period return of the proposed redeemed ETF units to surpass the
holding-period returns of the units to be redeemed should be calculated on the basis of average five-year returns of the Sensex and they
international MFs for SIP, beginnersThis adjustment would align ETF returns with historical long-term averages, as against the present
four-year redemption cycle, thereby potentially enhancing returns for subscribers
The labour ministry and the EPFO have chosen not to respond to inquiries by ET.It's worth noting that the EPFO initiated investments in
ETFs linked to the Nifty 50 and BSE Sensex in August 2015, initially allocating 5%, later raising the limit
As of January 31, it had invested 10% of its proceeds in ETFs, with the aim of achieving the maximum permissible threshold of 15%, provided
the authority permits reinvestment of redemption proceeds into ETFs
Presently, the EPFO has an investment corpus of Rs 12.53 lakh crore, with approximately Rs 1.25 lakh crore directed towards equities and
