'Nifty ETF gets more funds; gives lower returns'

New Delhi: With the retirement fund body EPFO bruising its hands on debut in stock market, an irony of sorts has emerged in its allocation of funds -- more money was invested in SBI's Nifty ETF but returns turned poorer.

After years of dilly-dallying on whether to take the risk of investing in stocks, Employees Provident Fund Organisation (EPFO) finally invested Rs 2,322.10 crore in ETFs during August-October period, but could earn only a meagre annualised return of 1.52 per cent.

SBI Mutual Fund was mandated to make the investments in its two exchange-traded funds -- Sensex ETF and Nifty ETF.

Officials said that the EPFO invested nearly Rs 590 crore in Sensex ETF, while over Rs 1,730 crore was put in Nifty ETF.

While fund allocated to Nifty ETF was nearly three-times of the same for the Sensex fund, the returns came out almost in the opposite ratio.

The Sensex ETF has earned an annualised return of 2.97 per cent for EPFO -- nearly three-times of 1.03 per cent for the Nifty ETF, officials added.

This has led to the officials and fund managers beginning to have a rethink on their fund-allocation strategies, while the poor returns have also triggered calls from trade unions to altogether stop the stock market investments.

While the government is still hopeful of better returns over a longer period of time with right allocation of funds, saying three months is a very short time, the union members of EPFO are playing hardball and are asserting that they always warned against the risks associated with the stock market.

At a meeting of EPFO's apex decision making body Central Board of Trustees (CBT) headed by Labour Minister Bandaru Dattatreya last week here, the trustees raised concern over the meagre returns and decided to have a rethink on its move to invest a total of Rs 6,000 crore in ETFs this fiscal.

"Trade unions have raised their concerns on low returns and the issue will be discussed at the Finance Audit and Investment Committee (FAIC) to be convened shortly," EPFO's Central Provident Fund Commissioner K K Jalan had told reporters after the CBT meeting.

EPFO has paid 8.75 per cent rate of return on PF deposits for the two consecutive years in 2013-14 and 2014-15. The main purpose of the body's decision to start investments in the equity and equity related schemes was to maximise returns.

Officials said they are analysing the comparative returns of Sensex and Nifty over longer periods of up to ten years.

Besides, other issues such as profile and liquidity of individual stocks forming part of Sensex and Nifty are also being analysed to ensure that the funds are allocated on the basis of higher and sustained growth prospects.

The CBT had decided to invest in ETFs finding them safer than direct investments in individual stocks. Being cautious on investment in stock market, EPFO decided

to begin with infusion of 5 per cent of its incremental deposits in the ETFs during the current fiscal.

This can go up to 15 per cent in coming years.

EPFO is estimated to receive over Rs 1 lakh crore as incremental deposits during 2015-16. Thus, it may end up investing around Rs 6,000 crore in stock market this fiscal.

EPFO was earlier told by financial advisors that long-term investment in equity or equity-related schemes can give returns as high as 15 per cent.

Between August and October, EPFO invested Rs 758 crore from Employees' Pension Scheme and Rs 1,564.1 crore from Employees Provident Fund Scheme into ETFs.