The EPFO’s apex decision-making physique, the central board of trustees, licensed the group throughout its late March assembly to contemplate reinvesting the redemption proceeds derived from its ETF investments. However, the implementation of this initiative, which might enhance the influx of retirement funds into equities, necessitates approval from the finance ministry. According to the funding tips set by the finance ministry, the EPFO can allocate between 5% and 15% of its revenue in the direction of equities and associated investments.
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The EPFO is actively advocating for revisions to the prevailing ETF funding tips. Specifically, the group has prompt a shift to day by day redemption of ETF models, linked to the return benchmark of presidency securities, as opposed to the present periodic system. This proposition additionally entails benchmarking ETF returns to the common five-year efficiency of the Sensex, a departure from the prevailing four-year comparability, as disclosed by officers conversant in the state of affairs.
Upon reaching a consensus between the finance and labour ministries, the EPFO will current the ultimate proposal to the finance ministry for its endorsement. An official instructed ET that the EPFO asserts the need for the holding-period return of the proposed redeemed ETF models to surpass the yield on the 10-year benchmark authorities safety by a margin exceeding 100 foundation factors.
“Further, EPFO has also proposed that the holding-period returns of the units to be redeemed should be calculated on the basis of average five-year returns of the Sensex and they must be allowed redemption on a daily basis,” the official stated.
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This adjustment would align ETF returns with historic long-term averages, as in opposition to the current four-year redemption cycle, thereby doubtlessly enhancing returns for subscribers. The labour ministry and the EPFO have chosen not to reply to inquiries by ET.
It’s price noting that the EPFO initiated investments in ETFs linked to the Nifty 50 and BSE Sensex in August 2015, initially allocating 5%, later elevating the restrict. As of January 31, it had invested 10% of its proceeds in ETFs, with the intention of attaining the utmost permissible threshold of 15%, supplied the authority permits reinvestment of redemption proceeds into ETFs.
Presently, the EPFO has an funding corpus of Rs 12.53 lakh crore, with roughly Rs 1.25 lakh crore directed in the direction of equities and associated investments.
