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Expert Tips




(An Expert on Financial matters & Author of bestselling book, “Investment…Risk & Growth”)


As per the earlier policy, market exposure of EPFO and Exempted PF Trust has been limited to government bonds and corporate bonds such as: GOI Securities, Treasury Bills, GOI Special Bonds, Gilt Mutual Funds, State Development Loans (SDL), State Guaranteed Papers, PSU Bonds, PFI Bonds, Private Sector Bonds & BASEL III Tier-I Bonds.

The Ministry of Labour had notified a new investment pattern for EPFO in April, allowing the EPF Trust to invest minimum of 5% and up to 15% of its funds in equity and equity related instruments.


Like EPFO, the new pattern of investment policy is also mandatory with effect from 29th May 2015for Exempted CPF Trust, to invest in Equity & Equity related instruments; minimum of 5% and up to 15% of its funds subject to an overall investment in this category capped at a maximum of 5% .Exempted Trust can invest in Equity Shares, Equity Linked Mutual Fund, Index Funds and Exchange Traded Funds under this category.

Objective of equity investment by EPFO:

The investment of EPFO & CPF Trust in equity and equity related instruments will help in building the nation’s industries, which in turn helps in the overall growth of the economy, control of CAD, controlling the fluctuation of currency and creates jobs in long-run. Infusion of public money through EPFO and exempted CPF Trust can control the capital market volatility which also protects small investor’s hard-earned money because of erratic actions by the foreign institutional investments (FII). Stability of Government at center induces the massive FII inflows since two years, indicate positive correlation between the foreign institutional investments (FII) and the movement of Sensex. On the other hand, it will improve corporate governance and will create a lot of demand for the Indian rupee. On the contrary, in long-run, this situation leads to excess liquidity thereby leading to inflation.

Make a policy before investment:


Although parking of Retirement Funds (PF) in this category is very high risk, but there is no other alternative available as of date to avoid it. It is advisable to minimize the risk by investing in a different category. Direct equity investment in shares remains a very high risk proposition and it also needs expert opinion from time to time in order to catch the market trend.


It is advisable to all exempted Trusts to formulate investment policy before investment in this category. In my opinion, in order to  safeguard the hard-earned money of the employees , to some  extent, in the particular category, one   possible option for Exempted Trust  is to  invest in Equity  MFs’ and Sensex ETF/ Nifty ETF,  through  monthly systematic investment plan (  SIP)  route. SIP offers rupee averaging cost over the period of investment both in up-trend and downtrend market conditions. Investment through SIP ensures discipline investment regardless of the volatility of the market movement. While selecting the fund, Trust may also look for a consistent fund return, say over 10 years, AUM of the Fund and its management fee etc.

Benefits of investment in mutual funds:

Mutual fund is diversifying your money in to different Assets. It is very liquid- Trust can get its money within three days from the date of redemption. It is less risky than Equity, as fund units are professionally managed. It is a highly operational, transparent and user friendly because it’s all online. Overall, mutual fund is tax-efficient, involves lower costs, higher safety, professionally managed, well diversified, offers more liquidity and offers consistent returns in the long-run.

Invest directly in MF:

Expense ratio states how much an investor pays a fund in percentage terms every year to manage his/her money. A high expense ratio in the long-term may eat into your returns massively through power of compounding. A lower expense ratio does not necessarily mean that it is a better-managed fund. A good fund is one that delivers a good return with minimal expenses.

Trust must consider the factor of fund management charges while investing in a mutual fund. Trust will be losing Rs 70.67 lakhs over a period of 30 years with 1% extra fund management charge, assuming investment of  Rs 10/- lakh in a mutual fund scheme which gives rate of return 12 % per annum. Hence, it is advisable to invest directly with mutual fund houses instead of any distributor / Agent. Since there is no distribution fee, the expenses will be lower and return will be higher. Over the years, it is proved that direct plans of equity mutual funds outperformed the regular funds by more than 1%.

Think before you invest:

Like Capital market, mutual fund is also governed by the underlining factors such as socio-economic conditions, inflation and interest rate, world events, political stability of a country, change of exchange rate, company performance and its governance.


Returns from shares and mutual funds depend upon earnings growth of companies. Hence, concentration ration of mutual fund plays an important role while selecting. Equity investments should always be for the long term, ideally more than five years. One can assume returns of 12-15% a year over the long term.


Review portfolio periodically:

Trust can evaluate the performance of a mutual fund such as NAV, portfolio turnover, risk and return yearly/ half yearly. .  It is also advisable to book the profit periodically by the trust or transfer equity fund to liquid / debt fund when fund earns more than Bank Fixed deposit rate and current inflation. In addition to above factors, Trust should also consider standard deviation, beta, sharp ratio, Treynor ratio, Concentration ratio, sortino ratio & Alpha while review equity mutual fund periodically.

Invest in different categories of Mutual funds:


It is prudent to invest in different fund houses and different products, which also protect the retirement fund​in the long-run. Conversely, the Employees’ Provident Fund Organization (EPFO) initially decided to invest  in NSE and BSE ETF.


It is advisable that Exempted CPF Trust would invest 5% of annual investment in blue chips / Large cap equity funds, diversify equity funds, which have minimum 65% of their investment in shares of body corporate listed on BSE or NSE, and part in Sensex / Nifty ETFs(exchange traded funds) & BSE/NSE Index funds at the beginning of investment.

Investment in blue chip (large cap) equity fund and diversified equity fund generates higher return in comparison to S&P BSE SENSEX as the former is managed actively by the professional/ expert fund manager, whereas the latter is managed passively. Sensex / Nifty ETFs (exchange traded funds is automatically drive by the market force, investor sentiment, economic and political conditions of a country, and the group of market players (Speculator).
Shri Anil Shah, Senior Fund Manager – Equity, Birla Sun Life presented on 31.07.2015, New Delhi, in National Conference on the Topic  “ provident Fund in Equity Market” organized by The Associated Chambers of Commerce & Industry of India .

“The CAGR return of the S&P BSE Sensex over the last 10 years has been 15.33%.As the tenure of investment increases, the probability of negative performance decreases. Historically, there has NEVER been an instance of negative performance for a period of 10 years and above”.

On the other hand, actively managed large cap and diversified fund has generated average CAGR return over last 10 years as of 2nd December 2015 , 15.52% & 18.40% respectively. However, the CAGR return of S&P BSE Sensex has been 11.29% only during last 10 years as of 02nd December 2015. It shows that Equities deliver strong returns with lower downside risk in the long term in comparison to debt instruments such as bonds, debentures and govt. securities. In a nutshell, participation of ECPF Trust in equity and equity related instruments will definitely generate good returns over a longer period of time.

R.K. Mohapatra is Jt. General Manager (Finance)-IRCON INTERNATIONAL LIMITED (A Govt. of India Undertaking), Ministry of Railways

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