How does the EPFO manage the money contributed by subscribers?

The money contributed by active EPFO subscribers goes into a common pool and is invested based on guidelines formulated by the Central Government. The Central Board of Trustees of the EPFO selects the fund managers and monitors their adherence to these rules.

According to the recent disclosure to Parliament, the EPF’s ₹3.6 lakh crore corpus (the provident fund alone and does not include the pension fund) was invested to the extent of

₹1.74 lakh crore in Central and State Government securities and Government-guaranteed securities; ₹52,845 crore in the special deposit scheme of the government; and

₹1,31,691 crore in corporate bonds (both public sector and private sector) as on December 31 2014.

The government’s approved investment pattern for the EPFO requires that up to 55 % of the corpus be parked in government securities or State/Central Government-guaranteed bonds. Five per cent within this limit may be invested in gilt mutual funds.

Another 40 % of its corpus is to be earmarked for term deposits in banks or corporate bonds, of which 75% has to be rated investment grade. 

The remaining 5 % of the corpus may be parked in money market mutual funds.

A recent amendment requires the EPFO to park a minimum of 5 % and a maximum of 15 % in stocks or equity-linked mutual funds. All these investments are managed on a buy and hold basis, without any active trading on market movements. 

How does the EPF select stocks?

The EPFO’s current equity investments are being made only through exchange-traded funds.

This year, the scheme plans to invest 25 % of the allocated ₹5,000 crore in SBI Mutual Fund’s Sensex Exchange Traded Fund and 75 % in SBI Mutual Fund’s Nifty Exchange Traded Fund. 

SBI Mutual Fund will charge 7 basis points (7 paise for every ₹100 managed) as fees for managing the EPF money, of which 5 basis points will go to the fund and 2 basis points towards investor education initiatives.