<div>Certainly, the Employees' Provident Fund Organisation's (EPFO) — the entity that handles a retirement fund corpus of Rs 8.5 lakh crore on behalf of 4.67 crore contributors — move to invest around Rs 5,000 in the equity market will lead to steady flow of domestic savings into the stock market, which will help provide stability. It will reduce market vulnerability to international events and change in risk perception in the global financial market.</div><div> </div><div>The move is part of Prime Minister Narendra Modi's agenda to reform Asia's third largest economy. The new EPFO rules may also help Modi hit an ambitious target of raising nearly $11 billion through selling stakes in state-run firms and minority stakes in private companies this fiscal year.</div><div> </div><div>Appointed by Modi last November, the soft-spoken Labour Minister Bandaru Dattatreya, had convinced some trade unions that the benefits of investing in stocks are greater than the risks.</div><div> </div><div>At present, some market experts believe that the move would expose the fund's large subscriber base to the rough and tumble world of volatile stock markets, Dattatreya thinks otherwise. The minister expressed optimism that the returns from the exchange-traded funds (ETFs) would be greater than the 8.75 per cent the EPFO pays out annually to its subscribers.</div><div> </div><div>Until now, EPFO's market exposure was limited to government and corporate bonds. It earned a return of 9.22 per cent on its investments last fiscal year, and paid 8.75 per cent to its subscribers.</div><div> </div><div>According to an article in <em>Mint</em>, in the past, the stock market had been driven by funds from foreign investors and availability of liquidity in the global financial markets. In 2014, foreign investors bought shares worth Rs 97,332.05 crore, while domestic investors were net sellers to the tune of Rs 30,884.28 crore. This has changed to an extent in 2015 on the back of strong fund flows from domestic investors. Domestic institutional investors have been net buyers of stocks to the tune of Rs 26,909.5 crore between January and July.</div><div> </div><div>Globally, pension funds have been among the biggest investors in the stock markets, including through ETFs. Even in Indian markets, foreign pension funds including from the US and various European countries, are among the biggest investors and they invest here as Foreign Portfolio Investors.</div><div> </div><div>An OECD survey in 2014 shows that large pension funds globally have about 30 per cent exposure to equity. This depends on the depth of the market, in other words, how much money it has.</div><div> </div><div>Many reports say, just like pension funds and insurance funds, EPFO's investment in the equity market will be restricted to only the top companies and governed by strict rules and accountablity. These are companies which are profitable and have a dividend paying track record.</div><div> </div><div>The Sensex on many occasions has delivered huge returns in comparison to a rather static returns offered by the EPFO. For instance, in 1999-2000, the Sensex posted returns of nearly 22 per cent compared with the 12 per cent interest rate on provident fund. In 2005-2006, the index shot up a whopping 65 per cent, while in 2009-10 the index soared 72 per cent on the back of robust foreign fund inflows. In all, the Sensex has delivered positive returns in 10 out of the last 16 years, showing the consistency in equity market performance, according to an article in the <em>Firstpost</em>.</div><div> </div><div>Indian shares were Asia's second-best performers in dollar terms last year but have retreated after hitting record highs in March, as investors grew disappointed with the slow pace of economic reforms from the Narendra Modi-led National Democratic Alliance (NDA) government.</div><div> </div><div>So far, the EPFO's entry is a good news for the equity markets as the organisation could become a major state-run investor after Life Insurance Corporation (LIC), supporting equity values in times of distress.</div>