The pension fund body will soon approach the Ministry of Finance to seek its permission to invest ETF proceeds in any permitted asset class to maximize returns.
A proposal in this regard was approved by EPFO’s central management board in the last week of March, according to the minutes of the meeting at which they made the decision. ET saw the minutes.
“It is proposed that proceeds from investments in ETFs may be reinvested in equities and related instruments, which will increase the equity component to the limit permitted in the portfolio,” the minutes read.
EPFO invests its funds based on the investment model notified by the Ministry of Finance.
Under current guidelines, between 5% and 15% of annual additional deposits received by EPFO can be invested in equities through ETFs, while the balance is invested in debt securities. There are no guidelines on the use of its ETF redemption proceeds.
According to the pension fund organization, the share of participations in the total corpus of the Employee Provident Fund was only 10% in January 2023 against the authorized limit of 15%.
EPFO started investing in equities via ETFs in 2015-16 with 5% exposure. The equity investment limit was increased to 10% in 2016-2017 and 15% in 2017-2018.
His cumulative investment in ETFs through March 31, 2022 was ₹1,01,712.44 crore, or 9.24% of the total investment of ₹11,00,953.66 crore.
EPFO periodically redeems ETF shares to generate income under the Employees Provident Fund scheme. Because ETF redemption proceeds are treated as income, only 15% of this redemption proceeds is currently invested in ETFs and the rest is invested in debt securities.
In the 2022-23 financial year, EPFO had redeemed ETF shares purchased for ₹15,692.43 crore in the 2018 calendar year.