The Employees’ Provident Fund Organization (EPFO) is a non-constitutional body that promotes employees to save funds for retirement. The organization is governed by the Ministry of Labor and Employment, Government of India, and was launched in 1951. Recently as per the news report, EPFO is evaluating the options to increase the investment in the stock market to around 25% from the current investment of 15%. So, let’s discuss what are the possible reasons behind this in this article as we move ahead.
EPFO to increase Investment in Stock Market up to 25%:
- Currently, 15% of the EPF is invested in the stock market and this percentage can go up to 25% in the coming period.
- The current interest rate on EPF investment is 8.1%, and the government wants to decrease it further but the kind of pressure the government got because of a few tweaks in EPF interest rate government understands that this is not going to help, will have to keep this interest rate on a higher side only.
- Currently, compared to all fixed income securities EPF is getting a higher interest rate in way sovereign guarantee of the government.
- The government’s revenue is less, expenditure is more that’s why there is a fiscal deficit and the scenario of interest rate all over India than the fixed deposit is giving around 6% to 6.5%, 10-Year G-Sec is suggesting 7.5%, other fixed instruments backed by the government is giving returns between 7% to 7.5%.
- If EPF is going to continue the interest rate of 8.1%, to sustain this interest rate the government is exploring the options and EPF is a long-term investment made by the public. Earlier also the government has explored that the new money they are receiving, 15% of this money should be invested in the stock market.
- All these investments are made in index ETF of Nifty and Sensex as these are considered as safest.
- To achieve this 8.1% interest rate the government is planning to invest 25% in the stock market and from a long-term perspective if the GDP of the country is growing at the rate of 6% to 7% with the inflation rate of 4% to 5% then the stock market might easily yield a return of 10% to 12%.
- In the future this percentage can be increased also, there is two option available either we can accept the lower EPF rate or the suggestion given by the government can be accepted.
- It will be great for the equity market as Rs. 1 lakh crore was already coming from EPF and now there will be an increase of 10% then the amount will come into the equity market will be around 1.4 lakh crore and SIP is already there of Rs. 12,000 crores so the dependency on foreign institutional investors will also decrease.
What should investors do?
If the government takes this final decision to invest 25% of the EPF money in the stock market then it will be positive news for the market as the investment will increase and dependency on the foreign institutional investor will decrease. An investor can wait and watch how the market will react when this happens.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.