Will start investing in exchange-traded funds from coming Thursday, with policy ready for market dips
In a landmark move, the Employees’ Provident Fund Organisation is likely to start investing in stock markets in the form of exchange-traded funds next week.
According to sources, Union labour minister Bandaru Dattatreya will launch EPFO’s investment in Mumbai next Thursday.
Dattatreya had said on Monday around Rs 6,000 crore (Rs 60 billion) would be invested in these funds by March 2016.
EPFO will invest in ETFs on a daily basis.
It has a contingency plan in case of a sharp fall in the market.
To start with, a part of its fresh corpus will be invested in ETFs issued by SBI Mutual Fund, say sources.
“We have got all the required approvals, internally and from Sebi (Securities and Exchange Board of India) -- to invest in ETFs.
"We will take a call on the amount we will invest on the first day, looking at the market conditions,” said a source.
"However, sources said EPFO’s proposal for concessions related to waiving of certain expenses had not been approved by Sebi.
For 2015-16, the body has said it would not invest directly in stocks although the new investment pattern formally allows it to do so.
An ETF is a security that tracks an index, a commodity or a basket of assets like an index fund but trades like a stock on an exchange.
This is the first time EPFO is investing in any equity instrument.
There was opposition all along from the labour unions over the years, fearing exposure to market fluctuations.
After getting approval from its central board of trustees, the labour ministry notified a new investment pattern, allowing EPFO to invest between five per cent and 15 per cent of its incremental corpus in the market.
The labour ministry notifies its investment pattern after considering the recommendations of the CBT, which had decided to invest five per cent of its incremental corpus of Rs 100,000 crore (Rs 1,000 in ETFs in 2015-16.)
According to the plan, when the market falls by over four per cent, EPFO will pool all its investment meant for the month on a single day and when the market falls by over two per cent, the entire sum meant for a week will be invested.
This plan will be reviewed every financial year.
EPFO also decided 75 per cent of its investment in equity would flow into Nifty companies and 25 per cent into Sensex companies.
EPFO chief K K Jalan had told Business Standard last month that its annual investment in equity might rise to Rs 30,000 crore (Rs 300 billion) in the next few years.
“If it turns out to be a positive experiment and we decide to invest 15 per cent in equities as in the guidelines and the investment corpus also rises, we might see Rs 30,000 crore (Rs 300 billion) a year flowing into stock markets,” Jalan had said.
Illustration by Uttam Ghosh/Rediff.com
