EPFO mulls increasing equity investment limit to 25% to bridge shortfall

Earlier on Saturday, the government approved 8.1% rate of interest on EPF deposits for 2021-22, which is an over four-decade low, for about 50 million subscribers of EPFO

The Employees' Provident Fund Organisation (EPFO) is considering a proposal to increase its investment limit in equities to 25 per cent of incremental flows from the existing 15 per cent, according to a report in the Economic Times. The equity investment will be first raised to 20 per cent and then to 25 per cent in the second phase.

Earlier on Saturday, the government approved 8.1 per cent rate of interest on EPF deposits for 2021-22, which is an over four-decade low, for about 50 million subscribers of EPFO.

EPFO's idea to gain higher exposure in stocks seems to be aimed at helping bridge the shortfall in returns with investment in debt securities

According to the report in ET, the Finance Investment and Audit Committee met two weeks ago to discuss the matter of investment in stocks. The report said that the proposal will be taken up in June last week at a meeting of the EPFO Central Board of Trustees (CBT). The recommendation will be sent to the labour ministry and finance ministry for final approval.

EPFO invests about Rs 1,800-2,000 crore in certain exchange-traded funds at its current level of 15 per cent. According to ET report, the EPFO gets total flows of Rs 600 crore every day on average and uses around Rs 200 crore to settle claims. EPFO officials have met mutual fund managers to assess the possibility of investing in equity schemes.

The current 8.1 per cent EPF rate of interest is the lowest since 1977-78, when it stood at 8 per cent. The 8.5 per cent interest rate on EPF deposits for 2020-21 was decided by the CBT in March 2021. It was ratified by the finance ministry in October 2021. Thereafter, the EPFO issued directions to field offices to credit the interest income at 8.5 per cent for 2020-21 into the subscribers' account.