EPFO is Planning to Increase Equity Investment Limit to 25% to Bridge Shortfall in Discussion

According to a report in the Economic Times, the Employees' Provident Fund Organisation (EPFO) is considering a proposal to increase its equity investment limit from 15% to 25% of incremental flows. In the first phase, the equity investment will be increased to 20%, followed by a 25% increase in the second phase.

Earlier on Saturday, the government approved an 8.1 percent interest rate on EPF deposits for 2021-22, a four-decade low, for approximately 50 million EPFO users.

EPFO's plan to increase its equity exposure appears to be targeted at bridging the return gap created by debt securities investments.

The Finance Investment and Audit Committee met two weeks ago, according to an ET report, to discuss stock investments. According to the report, the proposal will be discussed in a meeting of the EPFO Central Board of Trustees in June last week (CBT).

The recommendation will be given to the labor ministry and the finance ministry for final approval.

At its current 15%, EPFO invests around Rs 1,800-2,000 crore in some exchange-traded funds. According to an ET article, the EPFO receives Rs 600 crore in daily inflows and spends roughly Rs 200 crore to settle claims. Officials from the EPFO met with mutual fund managers to explore the potential for investing in equity schemes.

The current EPF interest rate of 8.1 percent is the lowest since 1977-78 when it was 8%. The CBT set the 8.5 percent interest rate on EPF deposits for 2020-21 in March 2021. The finance ministry ratified it in October 2021. Following that, the EPFO directed field offices to credit interest income of 8.5 percent to subscribers' accounts for 2020-21.

"We believe equities will likely provide good returns in the next years," Banasura added. "Investment yields in other categories are unable to deliver the needed returns on investments."