Employees’ Provident Fund Organization (EPFO)’s investment in the stock market has reached 10 percent for the first time. This has happened because this institution is looking for ways to increase its income to continue giving high annual returns amid low interest rates on government bonds. About 85 percent of EPFO’s investable amount is invested in government bonds. An official said that EPFO is allowed to invest only its newly deposited money in the stock market. They have committed to further investing in shares and the 10 per cent limit has just been reached. It is currently allowed to invest in shares up to 15 per cent. For FY 2025, EPFO had announced 8.25 per cent interest rate on members’ EPF balances, while the average interest rate on 10-year government securities was 6.86 per cent. Nifty 50 and BSE Sensex had given returns of 5.3 percent and 5.1 percent respectively.
Start of investment in shares and new arrangements
According to TOI news, EPFO invests in the stock market only through exchange traded funds (ETFs) based on S&P BSE Sensex and National Stock Exchange Nifty 50. It started investing 5 percent of its new deposits in it in August 2015. In recent reforms, it has allowed reinvestment of 50 per cent of the withdrawals from its ETFs in the stock market and increased the withdrawal period from four years to seven years.
RBI advice and future preparations
All this is happening at a time when last year the Reserve Bank of India had given several suggestions to improve the investment management and accounting practices of EPFO. EPFO is the custodian of retirement savings of over Rs 25 lakh crore of about 30 crore workers. RBI has suggested a very flexible way of investment. He believes that EPFO should change its debt portfolio and invest more in stocks at such a time so that it can get higher returns in the next cycle. This requires strong management of funds. EPFO has also appointed IIM Kozhikode to examine its equity withdrawal policy and interest stabilization reserve. A high-level committee has been constituted to study RBI’s suggestions on investment management, and training sessions are also being conducted in consultation with CRISIL.