EPFO looks to reinvest its ETF money, pings Finance Ministry
EPFO) has started discussions with the finance ministry to invest all of its redemption proceeds from exchange-traded funds (ETFs) back into the stock market. It has proposed measures that would maximise equity returns while shielding gains from market volatility, said people with knowledge of the matter.
The central board of trustees, the EPFO's apex decision-making body, had at its meeting in the last week of March allowed the EPFO to reinvest its redemption proceeds from its investments in ETFs.
Such a measure, which would further step up the flow of retirement funds into equities, has to be approved by the finance ministry.
As per the finance ministry's investment guidelines, the EPFO can invest between 5% and 15% of its income in equities and related investments.
The EPFO is seeking other changes to the ETF investment guidelines.
Benchmarking returns
It has proposed the redemption of ETF units daily, linking the return threshold to government securities, against periodically now. This also involves benchmarking ETF returns to the average five-year returns of the Sensex against four years now, officials familiar with the development told ET.
Once the finance and labour ministries reach a consensus on the matter, the retirement fund body will move the final proposal for the finance ministry's approval.
According to one of the officials who spoke on condition of anonymity, the EPFO is of the view that the holding-period return of the ETF units that are proposed to be redeemed should be higher than that on the 10-year benchmark government security by over 100 basis points.
«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
