EPFO redeems Rs 12,785 crore ETFs for FY22 interest payout

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The Employees Provident Fund Organisation (EPFO) has liquidated almost Rs. 12,785 crore worth equity investments in exchange-traded funds (ETFs) and will use capital gains of around 5,529 crore from it for FY22 EPF interest payout.

EPFO sold its investments made during July-December 2017 under an accounting rule called FIFO (first in and first out). During the second half of the 2017 calendar year, EPFO had invested 7,255 crore, and it was sold for almost Rs. 12,785 crore.

“Accordingly, capital gains of Rs 5,529 crore were realized through the redemption exercise, which will be included in the income for FY 2021‐22. The income from this redemption and from the debt investments will be the base on which the FY22 interest payout will be calculated,” said a board member of the EPFO with knowledge of the development.

The central board of trustees (CBT), the apex decision-making body of the EPFO, is meeting on March 11-12 in Guwahati and will announce the EPF interest rate for the 2021-22 financial year on March 12.

EPFO invests 85% of its annual accruals in debt instruments including government securities and bonds and 15% in equity via ETFs. The earnings from both debt and equity are used to calculate the interest payment. This is the fourth time when EPFO has redeemed a portion of its ETF investments before calculating the interest rate since it went to the stock market in 2015.

A finance committee of the retirement fund manager has agreed for “redemption of ETF units purchased during the last two quarters of the calendar year 2017 i.e. 01.07.2017 to 31.12.2017 by SBI MF and UTI MF in respect of Nifty-50 and Sensex based ETF, including the unredeemed units pertaining to the previous quarter,” said a second official who also declined to be named.

The official, who declined to be named, said that while the finance committee had previously estimated that the 2017 investments have grown to Rs 13,143 crore, market volatility eroded a portion of the gains.

Earlier EPFO had calculated to make a capital gain of Rs. 5,888 crore but the market volatility eroded the gains. But the good part is the said ETF liquidation concluded just before the Ukraine-Russia war began, as per official documents reviewed by Moneycontrol.

EPF Interest rate:

On February 13, Moneycontrol was the first to report that the EPFO board will meet after the state assembly election results are announced, and take a call on the interest rate for Fy22. And has written that the FY22 EPF rate to either be the same or slightly less than the FY21 payout of 8.5 percent.

The EPFO paid an 8.5 percent interest rate to millions of its subscribers in 2020-21. Its EPF rate was 8.5 percent in 2019-20, 8.65 percent in 2018-19, and 8.55 percent in 2017-18.

The EPFO currently has about 60 million active subscribers and manages funds in excess of Rs.15 lakh crore. EPFO gets an annual deposit of over 1.8 lakh crore.