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More Money Post Retirement? EPFO May Invest Beyond Nifty and Sensex

EPFO feels that equity investments in just two categories of exchange-traded funds (ETFs) run the risk of too much concentration in a small clutch of stocks and lower returns due to lack of diversification.

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Updated:June 26, 2018, 7:28 AM IST
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More Money Post Retirement? EPFO May Invest Beyond Nifty and Sensex
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New Delhi: Retirement fund manager Employees’ Provident Fund Organisation (EPFO) is looking to broaden its equity portfolio beyond the Nifty 50 and Sensex 30 stocks.

According to a report by Mint, EPFO and the Labour Ministry are of the view that to maximise returns, it has to expand its investment portfolio.

EPFO feels that equity investments in just two categories of exchange-traded funds (ETFs) run the risk of too much concentration in a small clutch of stocks and lower returns due to lack of diversification.

The central board of EPFO is likely to take a call on its equity diversification on Tuesday.

Though EPFO will continue to invest in stocks via ETFs, it is readying to invest in multi-cap and mid-cap ETFs, a market instrument that is far more volatile, but can provide better risk-adjusted returns over the long term. This, the organisation feels, would be rewarding for its 55-million strong subscriber base. A decision is expected to be taken on 26 June.

So far, EPFO has invested Rs 47,431 crore in ETFs and gained a 16.07% notional return. While its investments in ETFs run by the State Bank of India have returned 16.69%, the ETFs run by UTI have yielded 17.01% return as in May-end 2018. However, investments in central public sector enterprise ETFs have earned lower single-digit returns, according to official data.

Subsequently, the matter was referred to rating agency Crisil, which has been a consultant to EPFO on its investment matters. It was also discussed by senior officials of EPFO and the Labour Ministry. Following a direction from the central board of EPFO, the matter was re-examined by Crisil and a ranking made of three indices other than Nifty 50 and Sensex 30.

All three indices are being considered for diversification, given that the BSE MidCap Select Index, Sensex Next 50 and Nifty Next 50 fare better in the composite weighted score and rank higher than Nifty and Sensex.

The Labour Ministry will, however, require a go-ahead from the finance ministry if its central board approves the plan. The finance ministry needs to make a minor amendment to the investment pattern followed by EPFO to venture beyond the Nifty 50 and Sensex 30 indices.

EPFO started investing in stocks from August 2015 with a 5% exposure to equity via ETFs. At present, it invests 15% of its annual accruals in equities.





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