The Labour Minister (Bandaru Dattatreya) will preside over the function," Employees’ Provident Fund Organisation's Central Provident Fund Commissioner K K Jalan said while addressing an Assocham conference here.
Labour Ministry had notified new investment pattern for Employees' Provident Fund Organisation (EPFO) in April allowing the body to invest minimum of 5 per cent and up to 15 per cent of its funds in equity or equity related schemes.
However, the Employees’ Provident Fund Organisation management has decided to invest 5 per cent of its incremental deposits in ETFs only during the current fiscal. On the size of investment, Jalan said, "I also don't know. It depends upon the market. Finance Ministry norms allow me to invest up to 15 per cent (of incremental deposits) but CBT allows me to invest 5 per cent (in ETFs) to start with." During the April-June period, EPFO's monthly incremental deposit was around Rs 8,200 crore. Thus it will have around Rs 410 crore at its disposal to invest in ETFs every month. "We are a long-term player and in long-term equity market behaves in a positive manner. They (equity) have always given a positive return (in long-term)," Jalan said.
"But risk element of equity going down is always there. That risk element is very very less because it is only 5 per cent of incremental market (deposit)... even if we invest Rs 6,000 crore as you say that is even less than 1 per cent of our corpus (Rs 6.5 lakh crore)," he said. SBI Mutual funds has been roped in by the EPFO to help the body for its investments in the ETFs and understand the dynamics of the stock market. EPFO has not invested in equity markets so far. Some of the trade union members on the board of EPFO's apex decision making body Central Board Of Trustees (CBT) have been opposing the decision to park funds in volatile stock market.
Moreover, Employees’ Provident Fund Organisation plans to give an option to its subscribers to choose from various investment products where they want their money to be invested and a larger focus might be eventually on the equity market. At present, the Employees’ Provident Fund Organisation (EPFO) invests the incremental deposits received from its subscribers as per a specified investment pattern notified by the Labour Ministry. “EPFO will eventually have to come with 3-4 models (of investment products) where larger part will be equity. We have to give options to our stakeholders.. Perhaps we will come to that stage in a year and two, where we will give options to our stakeholders...(and ask them) you decide,” Employees’ Provident Fund Organisation Central Provident Fund Commissioner K K Jalan said here.
Speaking at an Assocham conference here, Japan further said the people might want such an option going forward as they are becoming more financially literate. “We should be prepared. I can assure you that EPFO is preparing itself for all these things in the future,” he said.
Giving credit to the Finance Ministry for pursuing EPFO to start investments in the stock market, he said, “We have not decided to invest in equity. The Finance Department (Ministry) has forced us to decide. Finance Department decides where the provident funds can invest.” Elaborating further, he said, “It was the Finance Ministry circular in March that said provident funds must invest its funds in equity. With that circular coming, there was no option for EPFO (but to invest in equity).. therefore we don’t want to take any credit as far as investment in equity is concerned.” In April, the Labour Ministry notified an investment pattern which allows EPFO to invest a minimum of 5 per cent and a maximum of 15 per cent investment in equity or equity related schemes.
This followed the Finance Ministry in March bringing out new investment norms for private provident funds in the country. It has provided for 5-15 per cent of funds to be invested in the equity or equity related schemes.
According to a study by CRISIL, if a large number of older people end up having no pension, the government risks having to shoulder the heavy fiscal burden of providing minimum sustenance to them. Such a fiscal burden can rise to 4.1 per cent of GDP, unless retirement sector gets the impetus it deserves.