EPFO invests up to 15% of its annual incremental corpus--pegged at `1.4 lakh crore--in stocks through ETFs to take advantage of higher returns from equities. The rest of the money is invested in government securities and other forms of debt.
However, on retirement, the subscriber gets a consolidated sum based on interest rate decided by the EPFO's central board of trustees (CBT). If the proposal cited above is adopted, then part of this payout will be in the form of units, similar to that of a mutual fund, that can be encashed at time of exit. This would also mean that the dividend earned by EPFO annually on its equity investment will be distributed among its 45 million subscribers, thus fetching them higher returns.
The return on equity investment isn't factored in while calculating the interest rate declared every year nor is it reflected in the PF statement. The cumulative return on EPFO's investment in equity was 13.72% until May in the two years since it began putting money in ETFs.
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