Should EPFO Invest in Equities?

Should EPFO Invest in Equities?

According to Economic Times,

EPFO Officials say,

A large number of subscribers of the EPFO are from the low-income group. Not only is the accumulated corpus very small, very often it is a substantial portion of their savings for retirement. It is not fair to risk this savings in equities, the EPFO says. The investors have the option of routing their personal investments in equities, ensuring that they have a good mix of fixed investments in through provident fund and potentially high discretionary savings in equities.

Recently, there was a proposal for EPFO (Employees Provident Fund Organisation) says that, EPFO should invest minimum 15% of the corpus in equities to achieve high returns.

Let me tell you that right now EPFO manages almost Rs.3 lakh crores of lakhs of employees across the country.

However, I personally feel that EPFO should invest 15-20% in equities to beat the inflation in the long run. This is because the 8.5% returns that is right now being generated by EPFO is not sufficient to beat the 2 digit inflation.

This fixed 8.5% return is just the psychological feeling. In reality, the wealth of investors investing in EPFO is shrinking because of the inflation. If we consider inflation 10% than EPFO is earning –2.5% annual returns. So your wealth in EPFO is shrinking by 2.5% every year. And suppose if the inflation is controlled to 6% than also the positive returns of just 2.5% is not sufficient in any way.

Right now governments and central banks from all around the world are printing literally billions and trillions of dollars out of thin air and this money is causing inflation and driving up the goods and services prices higher. And that’s why investing your money in fixed income instruments is a fool’s plan. Remember that the rules of money have been changed now.

So it is better to invest in equities in the long run to beat the inflation and save more on tax.