<\/p>\n
Belying promises of five years of investments via exchange-traded funds (ETFs) have yielded the Employees Provident Fund Organisation (EPFO) negative returns, with implications for employee payout. <\/p>\n
While the overall cumulative return is almost -8.3% as of 31 March for its \u20b91.03 trillion equity investments, its return on investments in government-backed Central Public Sector Enterprises (CPSE) ETF has given it a -24.36% return. <\/p>\n
Similarly, in the government-backed Bharat 22 ETF, EPFO\u2019s return on investments is \/\/minus\/\/ 19.73%. The other two ETFs run by SBI Asset Management Co. and UTI Asset Management Co. have yielded -6.19% and -10.06% for the retirement fund manager, according to official documents reviewed by Mint. <\/p>\n
The issue is likely to be discussed in the central board meeting of the EPFO later this week. <\/p>\n
EPFO invests 85% of its annual deposits in debt instruments and the remaining 15% in equity invested via ETFs. <\/p>\n
Though equity investments have inherent risks, in 2020-21 when debt investments are expected to earn less, its equity returns may not offer a cushion to EPFO, potentially impacting the rate of interest for millions of its subscribers. <\/p>\n
The problem also highlights its choice of some ETFs that are yielding very \/\/low\/\/ returns — a potential ethical concern for a pension fund that manages statutory retirement savings for millions of low-wage workers. <\/p>\n
A board member of EPFO, who declined to be named, said, \u201cInvestments to achieve goals of the government have their shortcomings. The retirement fund body needs to realize that there is a difference between educated investors investing by choice, and uninformed workers\u2019 money getting invested by default through avoidable ETFs.\u201d <\/p>\n
EPFO\u2019s investment in CPSE and Bharat ETFs as investment vehicles of a pension fund has been in the spotlight as they are seen as thematic investments with stocks of very few state-run companies. They were launched to help the government raise money from the market, and their performance too is often linked to government decisions. <\/p>\n
EPFO started investments via ETFs in equity on 5 August 2015 and as of 31 March 2020, its total equity exposure was Rs 1.05 trillion. Of this, it redeemed Rs.2,686 crore in 2018, leaving it with a total exposure of 1.03 trillion. <\/p>\n
In March, EPFO had announced an 8.5% payout for 2019-20 financial year, but it is yet to be credited to subscribers as a formal approval from the finance ministry is awaited.<\/p>\n
EPFO\u2003is looking at a tough 2020-21, with a sizable amount of EPF withdrawals prompted by the pandemic and job losses, said the board member cited above, adding, \u201cWe expect the investments to be well thought through.\u201d<\/p>\n
\u201cDebt investments like 10-year government bond yields are at least 1.2 percentage points less than a year back, and equity could have helped the body stand on better ground\u201d.<\/p>\n
\u201cETF as a concept and investment vehicle is not bad for a pension fund like EPFO. But this Nifty 50 centricity needs to change. Maybe, they should broad-base it and look at Nifty 100 and Nifty 500 indices for diversification, and a fair representation of the economy,\u201d said Shyam Sekhar, a financial planner and founder ithought, a financial consulting and advisory firm. <\/p>\n
\u201cCPSE ETF or Bharat 22 ETF may not be good vehicles for a pension fund for the way it is managed. There is a structural problem in them, and it was not thought through enough to create value for its shareholders while achieving some disinvestment targets,\u201d added Sekhar. <\/p>\n
EPFO investments give negative returns <\/p>\n
\n\t\t\t\t\t<\/div>\n