EPFO approves credit of ETF units to PF accounts

The Employees Provident Fund Organisation’s (EPFO) central board of trustees recent approval to allot 15% of the PF contribution parked in equities as ETF units to the subscriber’s account will benefit over 5 crore provident fund subscribers. These subscribers will soon be able to track and redeem the portion of their PF money invested in shares at market price. The subscriber will be able to redeem the units when he exits the fund or withdraws the accumulated sum of money.

The EPFO is mandated to invest up to 15% of the PF money in equities through exchange traded funds (ETFs), while it can invest the balance amount of 85% in debt instruments. The EPFO started investing in ETFsin 2015 with a view to maximising the returns for the subscribers.
 
The new policy will come into effect from next financial year. The decision will help the EPFO to monetise equity investments. After the implementation of the policy, the PF subscribers will have two accounts, one for the 85% money invested in debt, and the other for the 15% invested in equity. The return on debt investment will depend on the interest rates declared  by the EPFO every year, while the return on the equity part will depend on the market price of the ETF at the time of redemption of the investment.

When a subscriber decides to withdraw the PF amount, 85% of the investment will be paid along with accumulated interest, while the payment of the ETF part will be calculated by multiplying the total number of accumulated  units with the prevailing market price of the ETF. Of course, the subscriber will have the option to defer the withdrawal of the equity part for up to three years.