The Union government on January 4, 2020, issued a notification allowing the EPFO and exempted provident fund (PF) trusts to invest money in units of public sector debt ETFs such as the Bharat Bond ETFs.
Prior to this, the government had launched four tranches of Bharat Bond ETFs -- two in December 2019 and two in mid-2020.
EPFO to credit full 8.5% interest for FY20: How to check balance
For the government, Edelweiss Asset Management manages the ETFs. These ETFs are allowed to invest in AAA PSU debt. Apart from this, the set expiry dates of these ETFs are 2023, 2025, 2030, and 2031 which have a collective size of around Rs 30,000 crore.
"I expect flows to come in monthly, rather than a single point of time. They will hence be manageable and won't present a supply problem," LiveMint quoted Edelweiss Asset Management Limited CEO Radhika Gupta as saying.
Despite an 8.5 percent interest rate declared by the EPFO for FY20, these ETFs have yields in the 4.5-6.6 percent range and have exempted PF trusts also to match. As a solution to this mismatch, experts suggested a transfer of risk to subscribers rather than provident funds through unitisation.
"This is a good move but ideally EPFO and PF trusts should be allowed to credit these units to employee accounts and allow employees to take decisions on them. Without unitisation, this move will have limited impact on the operations and returns of provident funds," the business daily quoted Mercer's India Business Leader Amit Gopal.