The Employee Provident Fund Organisation (EPFO) has agreed to transfer the benefits of equity investments to the accounts of subscribers by the end of fiscal year 2018. The decision was taken by the Central Board of Trustees (CBT), the highest decision making body of the EPFO. The investment will be disbursed to provident fund subscribers in the form of exchange traded funds (ETF).
The meeting by CBT came up with a few changes that will impact the accounts of over 45 million subscribers in the country. According to the decision of the board, a new central payment system has been finalized for making payments to subscribers.
The EPFO has been investing in the stock market since August 2015. So far, the organization has invested about Rs.32,500 crore in EFTs that are run by renowned firms such as SBI Mutual Fund and UTI Mutual Fund etc.
This investment has managed to generate annual returns of about 21.87%. This return is way better than the returns generated through debt investments (8.5%). Currently, EPFO invests about 85% of its money in debt investments and the remaining 15% in equity investments. Considering the high returns on equity investments, the government might consider increasing the share of equity investments.
Despite generating healthy returns, the returns were only notional because the investments have to be liquidate in order to realize the benefit. As per the new payment system, subscribers can opt for both cash or equity when they withdraw their PF money. For instance, if a subscriber has Rs.1 lakh in EPF balance, he can opt for Rs.15,000 in equity shares during the time of withdrawal.
The subscriber can withdraw the cash amount and the equity shares can either be withdrawn or kept in the account even after retirement. Moreover, the dividend earned from the equity component will be distributed to the subscriber.