The EPF is gradually becoming like the NPS. It would also give units for your investment in the share market. It would be similar to the mutual fund units. You may not know that, EPFO has started to invest a part of your contribution to the share market. Thus, you would see the market movement in your EPF corpus as well. You would get unit for equity investment. It means, the value of your equity portion would fluctuate according the share market.
Decision of EPFO Board: Unit For Equity Investment
The EPFO board of trustees have taken following decision regarding the investment in share market.
- You would get ETF unit for your investment in share market. Let me tell you that EPF money is invested in share market through the exchange traded fund (ETF).
- The EPFO divides your EPF contribution in two part. The big chunk would go to the Debt investment. It would earn interest
- While small part would go to the share investment. The value of this part would change according to the share market.
- As of now, EPFO invest 15% of your EPF contribution towards the share market. It may go higher in future.
- The Indian Institute of Management-Bangalore has devised to formula of ETF unit allocation.
Withdrawal of Equity component
You can withdraw EPF balance after the retirement. Premature withdrawal is also possible. So at the time of EPF withdrawal, you get 85% of your EPF contribution along with the accumulated interest. Whereas you would redeem the ETF units of the 15% contribution. Your ETF units would have the value according to the prevailing market price.
When a subscriber decides to withdraw PF, the EFPO pays 85% of the total investment along with the accumulated interest. It gives the value of ETF units for the remaining 15%. The value of ETF units would be according to the market price.
You can withdraw only the debt component and defer ‘share market’ component for a better price. You would have 3 years extra for redemption of ETF units. If a subscriber wishes to withdraw both equity and cash components, he will have to mention this in his withdrawal application.
Present Status of EPFO equity Investment
There are 45 million active EPF members. From the contribution of these members, EPFO invests 15% of the amount in exchange traded fund. As of 31 October 2017, the EPFO has invested ₹32,298 crore in ETFs. SBI Mutual Fund and UTI Mutual Fund run these ETFs.
|EPF Equity Investment|
|Year||Amount in Crores|
|* till 31 October 2017|
The EPFO has earned an annual return of 21.87% from the ETF investment. Currently, the EPFO does not factor the equity part of the EPF investment. The EPF passbook also does not show the Equity investment.
Some Questions Remain
The EPFO has to clarify the situation of partial withdrawal. What would be formula and which part would be used for the EPF partial withdrawal? If the existing formula of partial withdrawal is applied for debt portion, the employee would get a lesser amount.