After EPFO, Sebi pitches for more pension funds in market

New Delhi: With the largest retirement fund EPFO beginning to invest in capital markets for the first time ever, regulator Sebi has pitched for similar investments by other pension funds as well. Welcoming the EPFO decision to invest five per cent of its  incremental deposits into capital markets through ExchangeTraded Funds (ETFs), Sebi chairman U K Sinha said other  pension funds should also look at investing in markets.   

"This is a very good development that 5 per cent of the  Employee Provident Fund Organisation's incremental deposits  will come into capital markets. A decision has been taken by  the EPFO, which is the largest pension fund, but there are  other government pension funds also," said Sinha.  Giving examples of Coal Miners Fund and Assam Tea Planters. Fund, Sinha said all such funds should now look at investing in the capital markets. For EPFO also, Sinha said the investment cap should increase further from 5 per cent going forward.   

"But, first let us see the experience with this five per cent and then they can look at further increasing the percentage," Sinha said, while adding that the government must  be complemented for EPFO's decision to start investing in  capital markets after a long-running debate. EPFO has a huge corpus of about Rs 6.5 lakh crore, out of  which it has an incremental deposit of about Rs 1 lakh crore. For now, the EPFO has decided to invest 5 per cent of the incremental deposits, amounting to about Rs 5,000 crore, through ETFs this year, beginning with Sensex and Nifty-benchmarked ETFs of SBI Mutual Fund.    

This cap could be increased to 15 per cent next year.Besides EPFO, there are an estimated 1,500 other pension  funds in the country with overall corpus of close to Rs 2 lakh  crore. Under the current regulations, these funds can also invest up to 15 per cent of their incremental deposits in the equity and equity-related instruments. While Labour Ministry issued a notification in April to allow EPFO to invest a part of its funds in stock markets, a similar notification for private provident funds was issued  in June.

However, trustees of individual funds would need to take a final decision before investing in the stock market. Globally, pension funds have been among the biggest  investors in the stock markets, including through ETFs. Even in Indian markets, foreign pension funds including from the US  and various European countries, are among the biggest   investors and they invest here as Foreign Portfolio Investors. For many years, Finance Ministry had been pushing Labour Ministry, which administers the EPFO, to enter the market, but     the proposal has been facing strong opposition from unions. Market experts say EPFO and other pension funds have the potential to become top domestic institutional investors in  the Indian markets, on the lines of state-run insurance giant  LIC, which has invested over Rs 2 lakh crore in the market.    

Last year, LIC netted a smart gain of 15 per cent from the market at Rs 24,373 crore. The Corporation, on an average, puts in around Rs 50,000 crore into equities every year.