All subscribers of the EPF or Employee Provident Fund scheme would have two separate member account heads: Fixed Income – where fixed annual interest gets credited to members account – and Equity (ETF) – where investment in equity is reflected as units and the return is marked to market. This accounting policy of investment in Exchange Traded Funds was recently approved by Central Board of Trustees or CBT, the apex decision body of EPFO or Employees’ Provident Fund Organisation. The EPFO has been investing in stock markets through ETFs since August 2015.
Exchange-traded funds (ETFs) are funds that track indexes such as Sensex and Nifty. In 2015-16, EPFO invested 5 per cent of its investible deposits which was subsequently increased to 10 per cent 2016-17 and 15 per cent in 2017-18.
In another development, over five crore subscribers of retirement fund body EPFO may soon have an option to increase or decrease investments out of their provident fund into stocks through exchange-trade funds (ETF). The Central Board of Trustees also decided to explore the possibility of giving an option of enhancing equity allocation beyond mandated equity investment limit (presently 15 per cent) and also the option of reducing equity allocation below the limit to the subscribers.
At present, EPFO subscribers have no such option and the body investment 15 per cent of its investible deposits into the ETFs. Earlier last year, the Central Board of Trustees had approved an accounting policy to credit ETFs into the members account apart from cash component.
The CBT has approved the recommendation of the EPFO’s advisory body Finance Investment and Audit Committee recommendation that subscribers are allocated equity units only for 15 per cent of their contributions and all units over and above this allocation to all the subscribers would be held by the EPFO, a statement issued by the body said.
The trustee also approved EPFO’s advisory body Finance Investment and Audit Committee’s recommendation of formulating a separate policy for periodic disposal of these equity units and a separate reserve fund for smoothening out volatility of equity returns and to provide equitable returns to all the subscribers.
Source by:- ndtv