The Employees’ State Insurance Corporation (ESIC) wants to invest surplus funds in the stock market through exchange traded funds (ETFs) and is awaiting Securities and Exchange Board of India (SEBI) nod for an exemption from the ₹25 crore per transaction limit.
As of March 31, 2024, the social security body’s investments in government and other securities, bonds and debentures, FDs and SDA were to the tune of ₹1,48,547.16 crore, sources in the Ministry of Labour and Employment (MoL&E) said.
Of this, ₹79,611 crore has been invested in government securities, ₹7,147 crore in other approved securities, ₹39,407 crore in debentures and bonds, more than ₹44 crore in fixed deposits with scheduled commercial banks and ₹22,336 crore in Special Deposit Account (SDA) with Union Ministry of Finance, said sources in the Ministry.
Follow-up with SEBI
The ESIC wrote to SEBI last year seeking exemption from ₹25 crore per transaction threshold given that it does not have the capacity to shell out that big volume of investment in one go, explained Ministry sources.
The social security body subsequently followed up with the markets regulator for getting a nod to its proposal, but a response is still awaited, MoL&E Ministry sources pointed out.
The decision to invest surplus funds in equities, restricted to ETFs, which would protect public funds from stock market fluctuations, was taken in the 189th meeting of ESIC held in December 2022.
The move was born out of understanding that investments in various debt instruments fetch low returns and also a need was felt to diversify investments.
Roping in AMCs
Once ESIC gets a nod from the SEBI, it will bring on board fund managers of asset management companies to invest a portion of surplus funds through the ETF in the stock market and the long-term return would be ploughed back for welfare of registered employees.
Though the exact percentage of surplus funds to be traded will be determined after all clearances are obtained and systems are in place, Ministry officials earlier indicated that the plan was to start with 5 per cent and potentially scale it up to 15 per cent.
The ESIC will be guided by the Union Ministry of Finance norms on investment of pension funds for placing surplus funds in the market.
“An equity doesn’t provide any interest income like fixed income security. The long-term average return on equity has been in the range of 10- 12 per cent over a period of five years, based on past experience,” remarked Ministry sources.
While the ESIC’s role would be only to monitor, the fund managers of an asset management company will do the investments.