Jalan stated the fund might improve that proportion to 10 % subsequent fiscal yr and think about investing in different ETFs.
“The government needs to increase its investment into equities”, said G. Chokkalingam, founder of Equinomics, a research and fund advisory firm. “That risk element is very very less because it is only 5 per cent of incremental market (deposit)… even if we invest Rs 6,000 crore as you say that is even less than 1 per cent of our corpus (Rs 6.5 lakh crore)”, he had said.
He also hinted that the investment in equities may go up to Rs 7,000-8,000 crore in case some of the other organisations like ONGC, whose fund is also managed by the EPFO, too decide to invest into equities. For this goal, SBI ETF Nifty and SBI Sensex ETF are the two index linked ETF schemes chosen from the State Bank of India-promoted SBI Mutual Fund. “We expect that the return to be given to 4.67 crore subscribers of EPFO to be more than the existing return of 8.75 per cent”, the minister said.
Bandaru Dattatreya, Hon’ble Minister of State for Labour & Employment (Independent Charge), Government of India made the formal announcement of EPFO’s maiden entry into Indian Equity Market at an historic event in Mumbai on Thursday. It will shovel 5 per cent of the incremental funds into the stock markets, roughly Rs 5,000 crore. K K Jalan, central provident fund commissioner, said that to start with EPFO will not invest in stocks directly but through SBIMF’s nifty and sensex ETFs in the 75-25% ratio, but this could change later. Thus, it will have around Rs 410 crore at its disposal to invest in ETFs every month.
“Unfortunately, the market participants will end up giving a handle to the status quoists when we see a dip in equity fortunes in a year or two”, he added. The NPS invests in equity and generates superior returns for its subscribers. Neither the ministry nor EPFO officials revealed how much would be invested in exchange-traded funds (ETFs) on the inaugural day.
“The present 5% cap was taken after the consultants recommended to initially keep the EPFO investments in equities at level”, Dattatreya said. Though the danger of equity going down is always there, the risk element is less because it’s only 5 per cent of the incremental market (deposit). “Long-term retirement money coming into equity market will bring stability to the market in the long run”.
Investors had welcomed the pension fund’s decision this year to begin buying stocks in 2015/16, hoping it would become, like state-run Life Insurance Corp of India, a steady source of funds especially in times of market turbulence.
