For most of us, EPF is something you only hear about when the hiring manager at your new company tells you about the different methods they take to reduce your tax liability. We don’t really spare much thought on the intricacies of the Employees’ Provident Fund Organisation or how it works.
But we should.
Especially now that EPFO is contemplating a significant increase in its equity investments. This will certainly shake things up within the otherwise conventional institution.
Let’s find out all the details!
EPFO’s Shift Towards Equities
EPFO, which manages a substantial corpus of funds on behalf of millions of employees, is considering a substantial increase in its equity investment limit. Although the official limit is 15%, the organisation has rarely pushed this limit. Instead, it chooses to stay within 10%.
As of 2023, however, EPFO’s Central Board of Trustees seems to be softening more towards equity investments. According to Economic Times,
“It is proposed that proceeds of ETF investments may be re-invested in equity and related instruments, which will increase the equity component to the permissible limit in the portfolio.”
Exploring the Benefits of Equity Investments
Equity investments have gained prominence due to their potential for long-term wealth creation. EPFO’s move to increase exposure to equities is aimed at tapping into this growth potential.
Allocating a larger portion of its funds to equities will allow EPFO to capitalise on the high returns that the stock market provides. After all, more growth is always desirable. If there is a way to provide it without exposing investor wealth to any unnecessary risks, then why not?
Attracting Millennial Investors
EPFO’s plan to expand its equity investments is likely to resonate strongly with millennial investors. With a long investment horizon ahead, millennials are keen to explore avenues that offer higher growth potential.
Conventional investments like fixed deposits and bonds are safe and boring, to say the least. Equities, on the other hand, offer the possibility of capital appreciation in the long run, making them an appealing option for young investors looking to maximise their savings.
Mitigating Risks and Ensuring Prudent Investments
Of course, this is not to say safety and caution are going out the window.
EPFO is extremely mindful of potential risks. The organisation will exercise caution and follow a prudent investment approach. It aims to strike a balance between risk and reward by diversifying its equity portfolio across various sectors and market caps.
Educating Investors and Enabling Smarter Choices
True change starts with awareness.
EPFO recognises the importance of educating its members about equity investments and their long-term potential. The organisation is taking steps to provide relevant information and guidance by offering resources, workshops, and simplified investment tools.