EPFO rethinks Equity

47033746Employees Provident Fund Organization (EPFO), after a long thought out process, delaying decision for more than 18 months decided to take exposure into the equity markets to its contributors the advantage of Equities. What turned out is history again, the long dilemma in deciding took away the best of opportunities in the markets and just after their decision to pump in ₹6000 crores or 5% of the corpus into equities in the month of June 2015, the markets took a U turn with the China Crisis in August followed by the downward spiral of the Crude Oil markets.

In 6 months from the decision, the EPFO is rethinking its strategy and wants to pull out its investments following losses it has suffered in the markets. While this condition will give wrong signals to the employees whose contributions were the corpus of this organization? That the Equity markets are not a good investment avenue, while it is not the markets whereas the time of the entry which came amidst a lot of fear and attracted what it was feared off.

They had actually planned a regular investment, which in reality is a very good decision, over a period with the might the equity markets have in providing the highest return on investments which no other asset class in the world can match. To give such good returns, it also requires another important factor, which is TIME. If equity investments are approached with a short term view or with a mind-set that we will only make profits, that is not going to happen. It is the volatility that gives this asset the advantage of giving best profits.

Give your investments time of anything  between 3-5 years, the risk quotient almost becomes zero and it has a potential to give more than 15% annualised returns, provided the necessary churn is done on the portfolio.