Exclusive | EPFO’s Rs 1.23 lakh crore equity investment fetches 14.6% return; CPSE & Bharat 22 prove to be a drag 

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A stock market surge has delivered to the Employees’ Provident Fund Organisation (EPFO) an annualised return of 14.6 percent on its Rs 1.23 trillion cumulative investment in equities.

That would cheer the over 60 million salaried individuals who contributed to the government’s retirement savings manager, although the return has been dragged down by dismal yields on its exposure to the Bharat 22 and central public enterprise sector (CPSE) exchange-traded funds (ETFs).

Bharat 22 was launched to fulfil the government’s target of divestment from public sector companies. CPSE ETF tracks the performance of select CPSEs.

Exposure to Bharat 22 has fetched the EPFO an annualised return of just 2.1 percent in the year that ended in March; its investment in CPSE ETF gave it a negative return (-1.7 percent) by the end of financial year 2021, according to data and details accessed by Moneycontrol.

Experts say the better equity yield will enhance the EPFO’s interest paying capacity, but its exposure to some of the ETFs needs to be pared to curb losses on investments of employees’ statutory savings.

In comparison to CPSE ETF, and Bharat 22 ETF, EPF investments managed by SBI Mutual Fund and UTI Mutual Fund have offered it a higher return. EPFO invests in the stock market only via ETFs.

As of March 31, 2021, the EPFO corpus invested by SBI Mutual Fund in ETFs mimicking the Nifty 50 and Sensex 30 indices has given the retirement fund manager a return of 15.76 percent as of March 31, 2021.

And the corpus managed by UTI MF has fetched an even better annualised return of 16.37 percent, the EPFO has calculated.

“I am not at all a fan of PSU stocks. CPSE ETF and Bharat 22 ETF are tailored for achieving government goals, not EPFO and its subscribers’ goals. They are good divestment vehicles for the government, but is a poor choice for the retirement fund body. Because, they don’t represent the broad equity market,” said Suresh Sadagopan, founder of Ladder7 Financial Advisories.

By the end of FY2021, EPFO had net investments of Rs 122,986.4 crore (almost Rs 1.23 lakh crore); the notional value of the investments was pegged at Rs 1.6 trillion, effectively giving it a 14.67 percent annualised return. The details are expected to be presented to the EPFO’s central board when it meets on November 20.

By the end of the last financial year, SBI MF was managing a net investment of Rs 86,577.51 crore for the EPFO and UTI MF was managing a net investment of Rs 26,401.33 crore.

The retirement fund had invested Rs 10,007 crore combined in CPSE ETF and Bharat 22 ETF by March 31, 2021.

To be sure, EPFO’s overall equity investments and returns may have risen by now as the stock market has climbed significantly since the end of March. The S&P BSE Sensex rose from 49,509.15 on March 31, to 60,322.37 by end of trading on November 16.

A central board member of the EPFO said that while equity investment was a net positive because it offered the retirement fund manager a better return, Bharat 22 ETF or CPSE ETF only forced subscribers to invest in low yielding funds and were the wrong choices.

“When EPFO has exposure to indices, they could have avoided these sectoral exposures. But in the long run, PSU stocks may offer a better return in cycles. EPFO can actually expand its exposure by adding Nifty Next 50 or BSE 100 indices in its investment basket for a larger exposure and return,” said Amit Gopal, principal and India business leader-investments at Mercer.