EPFO May Increase the Equity Investment Limit. Here’s All You Need to Know
Contents News/Article Date: 7th June 2023
Relating to which Act: The Employees Provident Funds & Miscellaneous Provisions Act, 1952;
Penalty under the Act: Whoever, for the purpose of avoiding any payment to be made by himself under this Act [the Scheme, the [Pension] Scheme] or the Insurance Scheme] or of enabling any other person to avoid such payment knowingly makes or causes to be made any false statement or false representation shall be punishable with imprisonment for a term which may extend to one year, or with fine of five thousand rupees, or with both].
Applicable to which State: All the States and Establishments to be covered by these Acts
Type: Personal FN news report
Pertains to: PF registered establishments and members
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And in the current instance: The EPFO now would approach the finance ministry for clearance, and if approved, the EPF account holder’s/members’ exposure to equities, a risky asset class, could increase a bit. Trade unions may oppose increasing exposure to equities given their volatile nature.
However, if the undercurrents continue to remain favourable for Indian equities going forward and foreigners continue to exude confidence, respectable returns could be clocked on the equity component benefitting several EPF account holders/members at large.
Subject: EPFO May Increase the Equity Investment Limit.
Appended is the complete news item
EPFO May Increase the Equity Investment Limit. Here’s All You Need to Know
ROUNAQ NEROY / JUN 07, 2023
For individuals in the organized sector, the Employees Provident Fund (EPF) is a worthy social security government-backed scheme to build a nest egg for retirement, an inescapable truth of life. Over the years, the EPF interest rates have moved up and down in response to the interest rate environment (closely in line with government securities).
| Year | % Rate of Interest Announced | Increase / Decrease / Constant | % Change |
| 2000-01 | 11% | Decrease | -1.00% |
| 2001-02 | 9.50% | Decrease | -1.50% |
| 2002-03 | 9.50% | Constant | 0% |
| 2003-04 | 9.50% | Constant | 0% |
| 2004-05 | 9.50% | Constant | 0% |
| 2005-06 | 8.50% | Decrease | -1.00% |
| 2006-07 | 8.50% | Constant | 0% |
| 2007-08 | 8.50% | Constant | 0% |
| 2008-09 | 8.50% | Constant | 0% |
| 2009-10 | 8.50% | Constant | 0% |
| 2010-11 | 9.50% | Increase | 1.00% |
| 2011-12 | 8.25% | Decrease | -1.25% |
| 2012-13 | 8.50% | Increase | 0.25% |
| 2013-14 | 8.75% | Increase | 0.25% |
| 2014-15 | 8.75% | Constant | 0% |
| 2015-16 | 8.80% | Increase | 0.05% |
| 2016-17 | 8.65% | Decrease | -0.15% |
| 2017-18 | 8.55% | Decrease | -0.10% |
| 2018-19 | 8.65% | Increase | 0.10% |
| 2019-20 | 8.50% | Decrease | -0.15% |
| 2020-21 | 8.50% | Constant | 0% |
| 2021-22 | 8.10% | Decrease | -0.40% |
| 2022-23 | 8.15% | Increase | 0.05% |
The current interest rate offered on the EPF account is 8.15% p.a. (calculated monthly) and applies even to the voluntary contribution of the employee (which can be a maximum of basic salary + DA).
Typically, the EPFO allocates a majority of its assets in government securities, debt instruments and related investments. Around 5% to 15% of the portfolio is invested in equities — a high-risk asset class — in shares of companies with a market cap of over Rs 5,000 crore via the Nifty-based ETFs and Sensex-based ETFs. The shares are bought and sold in the same predefined proportion of the index according to their respective weightage. The fund manager has no role in deciding the inter se proportion of shares to be bought in Nifty / Sensex ETF. The dividends are reinvested in the scheme. That said, the Fund may also decide to distribute dividends to the investors.
For further diversification of investments, the EPFO is also allowed to invest up to 5% in asset-backed, trust-structured, and miscellaneous investments including the alternate investment funds (AIFs), real estate investment trusts (REITs), and units of infrastructure investment trusts (InvIT).
Last year, sometime in July 2022, as reported by the Economic Times there was a proposal to hike the investment limit in equities to 20% (from 15%) vetted and approved by the EPFO Advisory body, the Finance Audit and Investment Committee (FAIC). However, this proposal was not taken up in the EPFO’s Central Board of Trustees (CBT) meeting following the demand for more employees’ representatives in the EPFO trustees’ meeting.
This year, according to media reports, once again EPFO is looking to increase the equity investment limit. A proposal in this regard was approved by the EPFO’s CBT meeting in March 2023. The minutes read…
“It is proposed that proceeds of ETF investments may be re-invested in equity and related instruments which will increase the equity component to the permissible limit in the portfolio.”
The EPFO now would approach the finance ministry for clearance, and if approved, the EPF account holders/members’ exposure to equities, a risky asset class, could increase a bit. Trade unions may oppose increasing exposure to equities given their volatile nature.
However, if the undercurrents continue to remain favourable for Indian equities going forward and foreigners continue to exude confidence, respectable returns could be clocked on the equity component benefitting several EPF account holders/members at large.