EPFO, PF may generate more money now as govt allows investment in Bharat Bond ETFs
In what may come as good news for employees, the PM Narendra Modi-led central government has allowed the Employees' Provident Fund Organisation (EPFO) and Exempted Provident Fund Trusts to invest in public sector debt ETFs (Exchange Traded Funds) like Bharat Bond ETF. A notification was issued by the government in this regard on January 4.
So far, a total of four tranches of Bharat Bond ETFs have been launched, including two in 2019 and the rest last year. Edelweiss Asset Management manages the Bharat Bond ETFs, which are allowed to invest in AAA PSU debt and have set expiry dates in 2023, 2025, 2030 and 2031.
Collectively the ETFs have a size of around Rs 30,000 crore.
Hailing the Modi Government's move, SEBI registered tax and investment expert Jitendra Solanki said, "This move will help centre to reduce the burden of paying a guaranteed return to the EPFO subscribers. The move is expected to help the government generate higher returns by the EPFO and exempted PF trusts in the coming time. Currently, they have just broken the ice by moving from assured guaranteed return to a variable return."
It may be noted that despite an 8.5 per cent interest rate declared by the EPFO for FY20, these ETFs have yields in the 4.5 per cent to 6.6 per cent range and have exempted PF trusts also to match. To deal with this mismatch, experts suggested a transfer of risk to subscribers rather than provident funds through unitisation.