Employees’ Provident Fund (EPF) members enjoy a rare combination of benefits — their savings earn a government-backed, risk-free return and the interest is largely tax-free under existing rules. But, it would be interesting for them to know that Employees Provident Fund Organisation (EPFO) does not simply keep these contributions idle.
The retirement body invests a portion of its massive corpus across various asset classes. The investment includes debt instruments as well as equities through exchange-traded funds (ETFs) linked to the stock market.
How EPFO invest your money?
As per rules, out of the total accruals in a year, EPFO can invest 85% in debt securities, and the remaining 15% can be invested in stocks.
The investment in debt instruments
For its debt portfolio, EPFO is required to allocate between 45% and 65% of its investments to government securities, while 20% to 50% must be invested in listed debt instruments.
Apart from that, up to 5% of the money can be parked in short-term debt and related instruments. It needs to be noted that short-term debt must carry a minimum A1+ rating from at least two credit rating agencies registered with the market regulator.
The investment in equities
For equity investments, EPFO can invest in registered mutual funds and exchange-traded funds (ETF) that move in tandem with the market.
EPFO can also invest directly in shares of large listed companies with a market value of at least ₹50,000 crore at the time of investment. In addition, it is allowed to invest in Real Estate Investment Trusts (REITs) that are regulated by the market regulator.
What are ETFs?
An exchange-traded fund (ETF) is an investment fund traded on stock exchanges. An ETF may hold assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index.
How much EPFO invested in ETFs in past few years
- Financial Year 2017-18: ₹22,765.99 crore
- Financial Year 2018-19: ₹27,974.25 crore
- Financial Year 2019-20: ₹31,501.11 crore
- Financial Year 2020-21: ₹32,070.84 crore
- Financial Year 2021-22: ₹43,568.08 crore
- Financial Year 2022-23: ₹53,081.26 crore
- Financial Year 2023-24: ₹57,184.24 crore
EPFO regularly invests in Equity markets through Exchange Traded Funds (ETFs) replicating BSE-SENSEX and NSE NIFTY-50 indices. In addition, EPFO has also invested from time-to-time in ETFs constructed specifically for disinvestment of shareholding of the Government of India in body corporates, namely ETFs tracking Bharat 22 and CPSE Indices, the retirement body informed in an notification