The Labour Ministry has started investing 5% of incremental corpus of Employee Provident Fund Organization or EPFO in equity markets through SBI Mutual Fund’s ETFs. These ETFs track the broad equity indices like S&P Sensex and Nifty 50.
Bandaru Dattatreya, Minister of State for Labour & Employment made this announcement at a press meet held in Mumbai. He said that equity has the potential to beat inflation and generate optimal returns. “This is a first step in the right direction. Equity can deliver better real returns over the long term. We believe that employees will get attractive returns from EPFO over a period of time. Also, we will review the performance after a year and are likely to increase such investments to 10%,” said Dattatreya.
An industry estimate shows that over Rs.7,000 crore will be invested through two ETFs of SBI Mutual Fund – SBI ETF Nifty and SBI Sensex ETF. KK Jalan, Central Provident Fund Commissioner said that 75% of incremental corpus will be deployed in SBI Nifty ETF while the rest 25% in SBI Sensex ETF. In future, EPFO would also like to take exposure to CPSE ETF, he added.
Jalan told Cafemutual that they are yet to decide the fund management fee; however, it could be less than 0.10%. Currently, both the ETFs - SBI Nifty ETF and SBI Sensex ETF have expense ratio of 0.07%.
Value Research data shows that SBI Sensex ETF has delivered a return of 11% over a year. SBI Nifty ETF was launched in July 2015.
Dinesh Khara, CEO, SBI Mutual Fund said that the move will help the fund house to position its ETFs as a low cost long term investment vehicle.
Last year, the finance ministry had given a mandate to Goldman Sachs AMC to launch and manage the central public sector enterprise (CPSE) ETF through which it had divested its stake in 10 PSUs.
Currently, EPFO manages a corpus of Rs.8.50 lakh crore.
AMFI data shows that ETFs which track the equity indices manage Rs. 7,170 crore as on July 2015.
