Sunday, 9 August,New Delhi: With the largest retirement fund EPFO beginning to invest in capital markets for the first time ever, regulator Sebi has pitched for similar investments by other pension funds as well.
Welcoming the EPFO decision to invest 5% of its incremental deposits into capital markets through Exchange Traded Funds (ETFs), Sebi chairman U K Sinha said other pension funds should also look at investing in markets.
“This is a very good development that 5 per cent of the Employee Provident Fund Organisation’s incremental deposits will come into capital markets. A decision has been taken by the EPFO, which is the largest pension fund, but there are other government pension funds also,” Sinha told PTI.
Giving examples of Coal Miners Fund and Assam Tea Planters Fund, Sinha said all such funds should now look at investing in the capital markets.
For EPFO also, Sinha said the investment cap should increase further from 5% going forward.
“But, first let us see the experience with this five per cent and then they can look at further increasing the percentage,” Sinha said, while adding that the government must be complemented for EPFO’s decision to start investing in capital markets after a long-running debate.
EPFO has a huge corpus of about Rs 6.5 lakh crore, out of which it has an incremental deposit of about Rs 1 lakh crore.
For now, the EPFO has decided to invest 5% of the incremental deposits, amounting to about Rs 5,000 crore, through ETFs this year, beginning with Sensex and Nifty- benchmarked ETFs of SBI Mutual Fund.
This cap could be increased to 15% next year.
Besides EPFO, there are an estimated 1,500 other pension funds in the country with overall corpus of close to Rs 2 lakh crore. Under the current regulations, these funds can also invest up to 15% of their incremental deposits in the equity and equity-related instruments.
While Labour Ministry issued a notification in April to allow EPFO to invest a part of its funds in stock markets, a similar notification for private provident funds was issued in June. However, trustees of individual funds would need to take a final decision before investing in the stock market.
Globally, pension funds have been among the biggest investors in the stock markets, including through ETFs. Even in Indian markets, foreign pension funds including from the US and various European countries, are among the biggest investors and they invest here as Foreign Portfolio Investors.
For many years, Finance Ministry had been pushing Labour Ministry, which administers the EPFO, to enter the market, but the proposal has been facing strong opposition from unions.
Market experts say EPFO and other pension funds have the potential to become top domestic institutional investors in the Indian markets, on the lines of state-run insurance giant LIC, which has invested over Rs 2 lakh crore in the market.
Last year, LIC netted a smart gain of 15% from the market at Rs 24,373 crore. The Corporation, on an average, puts in around Rs 50,000 crore into equities every year.