EPFO Update: The Centre was recently requested to provide details regarding the investment of provident fund money by the Employees’ Provident Fund Organisation in the last five years. Lok Sabha member T. Sumathy Alias Thamizhachi Thangapandian inquired about EPFO’s investments in debt instruments and Exchange Traded Funds (ETFs) and requested specific information.
In response, Minister of State for Labour and Employment, Shobha Karandlaje, stated that EPFO’s investments adhere to the investment pattern outlined by the Ministry of Finance and the guidelines issued by the Central Board of Trustees (CBT), EPF.
The Employees’ Provident Fund (EPF) is a retirement savings scheme chosen by most salaried individuals. Typically, employees contribute 12% of their basic pay, while employers contribute 12% towards the EPF.
EPFO consistently invests in equity markets through Exchange Traded Funds (ETFs) that mirror the performance of the BSE-SENSEX and NSE NIFTY-50 indices. Furthermore, EPFO periodically allocates funds to ETFs specially designed for the divestment of the Government of India’s shareholding in various corporate entities, such as the ETFs tracking Bharat 22 and CPSE Indices.
EPFO follows the prescribed investment pattern set by the government, which includes investing in both debt securities and ETFs.
The decision to start investing in ETFs was made during the 207th CBT meeting on March 31, 2015, and the first investment in ETFs was made in August 2015.
As of March 31, 2024, EPFO manages a total corpus of Rs 24.75 lakh crore, with Rs 22,40,922.30 crore allocated to debt instruments and Rs 2,34,921.49 crore allocated to ETFs. The government has also provided information on EPFO’s investments in the share market and related products over the past seven years and in the current financial year.
Here is the year-wise breakdown of EPFO’s ETF investments:
2017-18: Rs 22,765.99 crore
2018-19: Rs 27,974.25 crore
2019-20: Rs 31,501.11 crore
2020-21: Rs 32,070.84 crore
2021-22: Rs 43,568.08 crore
2022-23: Rs 53,081.26 crore
2023-24: Rs 57,184.24 crore
2024-25 (up to October): Rs 34,207.93 crore
The government clarified that the EPFO does not invest directly in any of the individual stocks in equity market.
How does EPF account work and earn
As an employee, a portion of your salary is deducted for the EPF scheme, which is matched by an equal contribution from your employer. The total amount is then deposited with the Employee Provident Fund Organisation (EPFO), where it accrues annual interest.
For instance, if you contribute Rs. 5,000 per month towards the EPF scheme, your employer will also contribute Rs. 5,000. The total sum of Rs. 10,000 is deposited with EPFO, where it earns a current interest rate of 8.15% per annum. Please note that this interest rate is subject to change as determined by EPFO on an annual basis.
The EPF scheme operates by deducting 12% of your basic salary, as mandated by law. It’s important to understand that, for EPF purposes, salary consists only of your basic salary and dearness allowance (DA), excluding HRA, conveyance allowance, special allowance, or any other benefits listed in your salary slip.
Employers also contribute an additional 12% towards the scheme, resulting in a total contribution of 24% of your basic salary.
The employee contributes 12% to EPF, while the employer’s part is distributed into different sections. One-third of the employer’s contribution, which is 3.67%, is allocated to EPF, and the majority, 8.33%, is directed towards EPS.