The retirement fund body will soon approach the finance ministry to seek its clearance for investing the proceeds from ETFs in any permissible asset class to maximise returns.
A proposal in this regard was approved by EPFO‘s central board of trustees in the last week of March, as per the minutes of the meeting where they made the decision. ET has seen the minutes.
“It is proposed that proceeds of ETF investments may be re-invested in equity and related instruments which will increase the equity component to the permissible limit in the portfolio,” the minutes read.
The EPFO invests its funds based on the investment pattern notified by the finance ministry.
Under current guidelines, between 5% and 15% of the annual incremental deposits received by the EPFO can be invested in equity through ETFs, while the balance is invested in debt securities. There are no guidelines on utilising its ETF redemption proceeds.
According to the retirement fund body, the share of equity investments in the total Employees’ Provident Fund corpus was only 10% as of January 2023 as against the permissible limit of 15%.
The EPFO started investing in equities through ETFs in 2015-16 with a 5% exposure. The equity investment limit was raised to 10% in 2016-17 and 15% in 2017-18.
Its cumulative investment in ETFs till March 31, 2022, stood at ₹1,01,712.44 crore, or 9.24% of total investment of ₹11,00,953.66 crore.
The EPFO redeems the ETF units on a periodic basis in order to generate income under the Employees’ Provident Fund scheme. Since, the proceeds of ETF redemption are treated as income, only 15% of such redemption proceeds are currently invested into ETFs and remaining is invested in debt instruments.
In FY 2022-23, the EPFO had redeemed ETF units purchased for ₹15,692.43 crore during the calendar year 2018.