TNN | Sep 3, 2015, 06.25AM IST | Times of India
The government, with an objective of creating a credible counterbalance to foreign funds in the stock market, is getting several smaller pension funds controlled by it to follow the Employees’ Provident Fund Organisation (EPFO) to invest part of their corpus in the stock market. Last month, for the first time in its 64-year history , EPFO, which manages over Rs 8.5 lakh crore worth of funds for salaried employees, started investing 5% of its incremental inflows (about Rs 400 crore per month) in stocks.
“Coal Miners Pension Fund, Seamen’s Provident Fund Organisation, Assam Tea Planters’ Fund, Jammu & Kashmir employees’ pension fund and several other such funds are now talking to Sebi for investing in stocks,” a senior Sebi official said.”The overall strategy for the government, to get domestic pension funds to invest in the equity market, is to have in place an institutional money pool which could be a counterbalance to FPIs,” the Sebi official said. FPIs, or foreign portfolio investors, mainly constitute foreign institutional investors (FIIs) and also include foreign individual investors and other investors of non-Indian origin.
Such a strategy to create a large pool of domestic institutional investors is necessitated by the fact that often, because of domestic or global factors that could be fundamental or technical in nature, foreign funds start buying or selling in the Indian market. This, in turn, leads to substantial volatility in the Indian market. To check such abrupt and sharp volatility , the government wants to have in place a large pool of long-term domestic institutional money , the Sebi official said.
As of now, mutual funds have around Rs 3 lakh crore in equities while another Rs 5 lakh crore is with insurance companies and other institutions. The combined equity investment figure of these domestic institutions nearly equals the total equity holdings of FPIs. Yet, selling by FPIs leaves a major impact on the stock market because they can take money out of India while domestic institutions cannot. The government wants a cushion that is able to balance out selling by FPIs even on a major scale.
Last month, EPFO started investing in the stock market through two of SBI Mutual Fund’s exchange-traded funds (ETFs), one each on nifty and sensex indices. To tap the long-term pension money from these PF funds, mutual fund houses are also launching ETFs, with UTIMF being the latest to open a sensex and a nifty ETF. LICMF and IDBI Bank have also filed their documents with Sebi.
Although EPFO has the leeway to invest up to 15% of its incremental corpus in stocks, it has started with 5%.Fund industry players said that other smaller PFs, which are also talking to Sebi to start investing in the stock market, will not take any extra risks in such investments and follow the EPFO model and stick to 5% now.
Source : http://goo.gl/ZZjpjs