EPFO mulls increasing equity exposure limit to 25% days after cut in interest rate

The Employees’ Provident Fund Organisation (EPFO) is considering a proposal to increase its equity exposure for a high return on the retirement corpus. EPFO is responsible for the regulation and management of provident funds in the country.

If reports are to go by, the EPFO is actively planning to raise the equity exposure from 15 per cent to 25 per cent, but in two phases. In the first phase, the cap will be revised to 20 per cent and then to 25 per cent in the second phase.

If the plan gets the EPFO Central Board of Trustees’ (CBT) nod, the proposal will be sent to the Ministry of Finance and the Ministry of Labour and Employment for ratification.

EPF is primarily considered to be a debt product. The funds are invested majorly in debt products like government securities.

It was in 2015 when the EPFO was first allowed to start investing in equities, but with a limit. The statutory body was initially permitted only 5% exposure in equities. The limit was increased to 15% in 2017.

The development assumes significance as it comes in the backdrop of the reduction in the interest rate to 8.1 per cent from 8.5 on EPF deposits for 2021-22, which is an over four-decade low.

EPFO's idea to raise exposure in stocks is aimed at helping bridge the shortfall in returns.