The Employees' Provident Fund Organisation (EPFO) has been investing a part of the money you put in EPF funds in stocks through equities traded funds (ETFs) since 2015. These are baskets of stocks that track the value of an index or bonds or a collection of assets (like index funds). They are highly liquid and are traded on stock exchanges.
From August 2015 to February 2018, EPFO has invested Rs 41,968 crore in these which has sought it a 17.23% notional return as per the press statement released on 13 April.
In 2015, it had invested 5% of the incremental corpus in the stock market and this was increased to 15% in 2018. Incremental corpus means the money that is collected from PF for the current year and only that will only be used for equity investments in the current; the old kitty is not touched.
The money you put in EPF gets a set interest rate that is revised every year. The interest rate was revised from 8.55% in 2017-18 to 8.65% in 2018-19.
Even if your money had been invested in equity by EPFO, it did not have a methodology to track individual gain and calculate equity returns as it has been a pooled investment up till now.
New methodology that may be introduced
In the future, if the government approves EPFO's proposal to allow subscribers to increase or decrease their exposure to equity.
The subscribers will get two accounts
- Fixed income as per fixed interest rate and
- Equity account that will state the equities that they hold and its prevailing net asset value (NAV)
It might seem like a complex product for those used to the simpler EPF as it used to be, but with the change, you will be able to opt for a decrease in your equity contribution too. On the other hand, subscribers could benefit from the higher returns if they choose to risk the money in their provident fund accounts.