EPFO okays conversion of 15% of PF accounts to ETF units
24 November 2017
The Employees Provident Fund Organisation (EPFO) will convert 15 per cent of all individual provident fund subscriptions of the 50 million subscribers to equity-linked units and allot these as separate mutual fund-like units.
The Central Board of Trustees of the retirement fund body at its meeting on Thursday gave the go-ahead to a new accounting policy for its equity-linked investments.
The new PF investment policy provides for 15 per cent of the PF contribution to be parked in equity-linked funds or ETFs. Subscribers will be able to track and redeem at market price the portion of their PF money invested in shares.
This portion can be redeemed when the subscriber exits the fund or withdraws the accumulated money, labour minister Santosh Kumar Gangwar said after the 219th meeting of the central board of trustees.
The rest of the subscription amount of PF accounts will be parked in debt instruments.
Investment in ETF started in 2015, with a view to maximise returns on the fund while also giving a boost to secondary markets.
Under proposed policy, EPFO will keep the cash and equity component for a subscriber. The 15 per cent invested every month in equity would be allotted to subscribers in the form of units.
The dividend earned by EPFO on its equity investment would also be distributed among the subscribers, thus fetching higher returns. ''When a subscriber wants to withdraw his savings from PF, he can opt for either cash or equity,'' M Sathiavathy, secretary of ministry of labour and employment said. She added that whenever the subscribers take advance or settle their PF accounts, the ETF units would be liquidated by the EPFO.
The number of ETF units that a subscriber will receive in his account will depend on the market price of the unit. For instance, out of Rs1,000, if Rs150 is the equity component and price of a single unit is Rs50, the subscriber will get 3 units.
The returns on the equity part will depend on the market price of the ETF at the time the investment is redeemed. When a subscriber decides to withdraw PF, 85 per cent of the total investment would be paid back along with the accumulated interest.
On the remaining 15 per cent, the payment will be calculated by multiplying the number of accumulated units with the prevailing market price of the ETF. The subscriber would have an option to defer the withdrawal of the equity investment for up to three years if the subscriber thinks that it can fetch him better returns.
EPFO's equity investment in 2015-16 stood at Rs6,577 crore while in 2016-17 it rose to Rs14,982 crore. This year, the investment limit was raised to 15 per cent, which translated into nearly Rs20,000 crore for investments.
According to central provident fund commissioner VP Joy, so far the EPFO has invested Rs32,000 crore in equity, fetching a cumulative return of around 21 per cent.