EPFO Reduced Minimum Investment In Debt. Here’s How PF Subscribers Will Benefit…
Feb 28, 2018

Author: PersonalFN Content & Research Team

The Indian Public Sector Banks (PSBs) are in the midst of reporting serious cases of frauds and Non-Performing Assets (NPAs).

The equity investors of these banks are going through one of the worst phases they might have seen with these institutions.

Although, the time for depositors to press the panic button hasn’t arrived, given that the government is still committed to protecting their money, they need to be cautious.

Invest less in debt securities—this has been the implied message of the Ministry of Labour and Employment, to the Employees' Provident Fund Organisation (EPFO).

Recently, it amended the investment pattern applicable to the Employees’ Provident Fund (EPF). According to which, the minimum investment limit for the Debt instruments and Related Investments has been lowered to 20% from the 35% earlier. The maximum ceiling remains unchanged at 45%.

Change in the investment pattern of EPF
Investment Pattern of EPFO Old New
Minimum Maximum Minimum Maximum
Government Securities and Related investments 45% 50% 45% 50%
Debt instruments and Related Investments 35% 45% 20% 45%
Short-term Debt Instruments and Related Investments 0% 5% 0% 5%
Equities and Related Investments 5% 15% 5% 15%
Asset Backed, Trust Structured and Miscellaneous Investments 0% 5% 0% 5%
(Source: EPFO)

If you observe closely you would realise, if EPFO prefers to allocate 20% of its corpus to the debt instruments and related investments, it will fall short of investment avenues despite exhausting the upper limits of other categories of investments.

Therefore, the recent move seems to be the precursor of it (government) increasing the ceiling on equity investments by at least 10%.

Equity investments generate better inflation-adjusted returns vis-à-vis those generated by debt instruments. For this reason, the global pension funds typically invest about 30% to 40% of their corpus in equity and related investments.

So far, the EPFO has adopted a passive route—by investing through Exchange Traded Funds (ETFs)—to deploying its corpus into the equity markets.  It’s estimated that the EPFO has managed to generate 13% annualised returns on equity investments.

EPFO has an AUM (Assets Under Management) of over Rs 9 lakh crore. Nearly 5 crore subscribers will benefit if EPFO manages to generate higher returns by investing incrementally in equity markets.

In FY 2015-16, it began investing in equity markets and deployed Rs 6,577 crore. If the ceiling on equity investments is raised to 25% indeed, it will end up investing around Rs 50,000 crore in a financial year.

EPF is one of the most reliable and tax-efficient sources of building the retirement corpus, but you can't solely depend on PF money to live your golden years.

Engaging in holistic retirement planning is essential.

Want to craft a customised retirement plan?

Want to know which are best investment avenues for retirement?

Looking for handholding to walk on the path to live a blissful retired life?


PersonalFN's Financial Guardian will assist you to plan your retirement. You can reach out to PersonalFN on (022) 61361200, or write to info@personalfn.com

Depending on your age, your risk profile, number of years left to your retirement; PersonalFN will help you define your asset allocation and draw a personalised financial plan so that you can  fulfil your dream of living a comfortable retired life.

To know how much you need to live a comfortable retired life, use PersonalFN's retirement calculator. It is an online tool that produces result in less than a few seconds.

To get comprehensive information on EPF, read: All You Need To Know About Employees Provident Fund.

Happy Investing!

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Dec 13, 2018

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