EPFO's investment limit in ETFs doubled to 10%, to invest Rs 13,000 cr: Bandaru Dattatreya

Brushing aside strong opposition from the unions, Labour Ministry doubled EPFO's investment limit in ETFs to 10% on Thursday that will result in Rs 13,000 crore of the retirement fund body flowing into stock markets in the current fiscal. It has raised the limit of investments by the Employees' Provident Fund Organisation (EPFO) in the Exchange Traded Funds (ETFs) in 2016-17 to 10% of investable income from 5% in 2015-16.

"We have already issued a notification raising the EPFO investment limit of ETFs to 10% from the current 5% of its investible deposits," Labour Minister Bandaru Dattatreya told reporters at a press conference here. EPFO has already invested Rs 1,500 crore in ETFs in the first half of the current fiscal and will invest about Rs 11,500 crore in the remaining six months.

When asked whether Labour Ministry has sought the EPFO trustees' approval, Dattatreya said: "The issue was discussed twice in the CBT meeting. Some members had reservations against the ETF investments." Asked whether CBT approval is not required, Labour Secretary Shankar Aggarwal said: "Government (Labour Ministry) is over and above the board."

He was of the view that when the CBT is not able to take decision on a issue then the Labour Ministry is appropriate government as per law (EPF Act) to take a decision for the benefit of the workers. However, the trade unions have slammed the Labour Ministry for taking a "unilateral" decision without approval of the EPFO trustees.

They have been opposing investments by EPFO in the stock markets in view of their volatile nature and had been unanimous on the issue. All India Trade Union Congress DL Sachdev said, "We strongly oppose this unilateral notification by the government to double FPO investments in ETFs despite our reservations. We will would soon discuss the issue with other unions and launch a protest against this move."

Indian Trade Union Congress Vice-President Ashok Singh said, "This is not the right approach. What was the emergency to do it and if it is done then what is the sanctity of the Central Board of Trustees headed by Labour Minister which is the apex decision making body for the EPFO." Talking to reporters, Dattatreya said: "We decided to raise it to 10% keeping the good economic situation, ground conditions and how social security funds invest globally. We are custodians of workers money and our responsibility is to see they get good returns." In 2015-16 fiscal, he said, the experience is "very good" and EPFO invested Rs 6,577 crore in the ETFs.

"In the last one year, the rate of return on investments was 13.24%, and at the same time our rate of returns in other securities is declining," he added. The Finance Ministry had last year notified a new investment pattern for EPFO, allowing the body to invest a minimum of 5% and up to 15% of its funds in equity or equity-related schemes.

The EPFO had started investing up to 5% of its investable deposits in ETFs in August 2015. EPFO's investable deposits (annual) is around Rs 1.30 lakh crore and it manages a corpus of about Rs 8 lakh crore. Government has entrusted the task of managing the EPFO's investments in ETFs to SBI Mutual Fund and UTI Mutual Fund.

While SBI will manage 75% of the amount, 25% will be managed by UTI. On decision to raise the number of funds to manage the investments in ETFs, Labour Secretary said: "So far we are starting with two and then depending on the experience, we will decide further."