As Coronavirus Batters Markets, EPFO Likely to Fall Short of Meeting 8.5% Interest Rate Commitment

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EPFO could not redeem a large portion of its Rs 95,500 crore of investments in exchange traded funds (ETFs) before the equity market went into bear market territory, a report said.

New Delhi: The Employees’ Provident Fund Organisation (EPFO) is unlikely to meet its commitment to pay an 8.5 per cent return to its 60 million subscribers in 2019-20 because of the serious tank in the stock market sparked by investor worries over the impact of the novel coronavirus.

According to a report by Hindustan Times, EPFO could not redeem a large portion of its Rs 95,500 crore of investments in exchange traded funds (ETFs) before the equity market went into bear market territory following the World Health Organisation’s March 11 characterisation of the coronavirus as a pandemic.

At the meeting of the Central Board of Trustees (CBT) on March 6, EPFO officials told the apex decision-making body that investments from government securities and bonds would be enough to provide an 8.15 per cent of return to subscribers; the balance 0.35 per cent will be paid by encashing ETFs.

The BSE Sensex and the National Stock Exchange’s Nifty on March 5 closed 0.16 per cent up at 38,471 points and 11,269 points, respectively. The market fell 24 per cent between March 6 and March 19. On Thursday, Sensex closed 2.01 per cent down to 28,288 points and the Nifty declined 2.42 per cent to 8,263 points.

People aware of the matter told Hindustan Times that the lack of sufficient time to devote to matters on the agenda was raised at the CBT meeting and labour minister Santosh Kumar Gangwar assured members that the agenda would be distributed to them 15 days in advance of future meetings.

The rate of return EPFO pays it subscribers needs to be approved by the finance ministry to become effective.

It was only in 2015 that the labour ministry allowed EPFO to invest in equity while capping the exposure at between 5 per cent and 15 per cent of its corpus.

The CBT, on March 31, 2015, decided to invest 5 per cent of EPFO’s total annual investments in ETFs of Nifty-50 and Sensex; the actual investment started on August 5 that year. The exposure to ETFs was raised to 10 per cent on September 12, 2016 and 15% on May 27, 2017, a government official said, requesting anonymity.