EPFO enters Dalal Street, plans to hike investments further
Labour minister Bandaru Dattatreya said EPFO will initially put only 5% of its incremental fund flow, which would be around Rs 5,000 crore, but the cap could be increased to 15% next year. The return from the ETF investment will be more than the 8.75% the EPFO offers to its subscribers now.business Updated: Aug 06, 2015 23:33 IST
State-owned retirement fund manager EPFO on Thursday announced it will invest 5% of its annual inflows, totalling about Rs5,000 crore, in the stock market, providing additional liquidity for Indian shares, which rely largely on institutional flows. The investment by the the Employees’ Provident Fund Organisation (EPFO) could go up to Rs15,000 crore later.
The EPFO’s participation in equities is the first such move since its inception in 1951. It will initially invest through the exchange-traded fund (ETF) route in two schemes — SBI SENSEX ETF and SBI NIFTY ETF.
Announcing the first investment in the presence of top market participants, labour minister Bandaru Dattatreya said, “The finance ministry has allowed us to invest up to 15% of incremental flow of the EPFO money into equities, from the present 5% now of the Rs1 lakh crore of investible money the fund has.”
“The 5% cap was taken after consultants recommended to initially keep the EPFO investments in equities at the level,” he added.
Although the move by the EPFO was welcomed by investors and fund managers, the amount was seen as low, reflecting the cautious stance of the government.
“Since this is our first investment in equities, we have decided to invest through the ETF route since that reduces the risk,” EPFO commissioner KK Jalan said.
While this investment by EPFO is expected to reduce volatility in the stock markets, it is much lower than that of the other large state-run investor, Life Insurance Corp of India, which bought Rs47,000 crore of shares last year.
“It is a significant move which will keep ownership of Indian companies with Indians,” said Nilesh Shah, MD, Kotak AMC.
Pension and endowment funds are the main sources of money for markets in the developed world.
Indian equities rely on inflows from foreign institutional investors (FIIs) and domestic mutual funds for liquidity. While FII inflows have been fluctuating given the volatile global environment, calender 2015 has so far seen large inflows from mutual funds.