How your PF contribution is powering the rally in the Sensex and Nifty
Every Indian with an Employees Provident Fund Organisation account is a buyer of shares in the Nifty and Sensex.
That is because the government has permitted the Provident Fund to invest up to 5% and 15% of its annual incremental deposits in equities.
There are reports that this could rise to 20%.
The Indian stock market, particularly the Sensex and Nifty, has been witnessing a surge, and your PF contribution is playing a pivotal role in this rally.
Passive Funds Phenomenon
Passive funds like Exchange Traded Funds (ETFs) are gradually gaining traction within the mutual fund industry.
According to a recent Franklin Templeton Mutual Fund report, the share of passive assets as a percentage of total assets under management skyrocketed to 16% in July 2023, up from a mere 6% in July 2019.
A significant chunk of this growth can be attributed to inflows from the EPFO.
The EPFO invests in ETFs based on Nifty 50, Sensex, Central Public Sector Enterprises and Bharat 22 indices.
As a result of this surge, many mutual fund companies have launched passive funds, which are also contributing to the rally.
Rock Solid Domestic Support for Stock Market
A few years back, the Indian stock market seemed to dance to the whims of Foreign Institutional Investors (FII). Their investments, often influenced by global conditions, brought about a roller-coaster of volatility in the Indian stock market.
But times have been changing.
Domestic institutional investors, especially the EPFO and mutual funds, emerged as the unsung heroes, stabilising when foreign inflows turned erratic.
The increasing inflows, especially from provident funds and mutual funds, have found their way into the stock markets.
With deeper pockets now, these fund managers are making the market more vibrant and dynamic.
This made the global financial powerhouse Morgan Stanley, state that India is having its 401k moment, drawing a parallel to the financialization of savings in the US.
Bullish on India
The consensus is that India's financial markets are waking up to their potential.
Given the low financialization of savings in India, as awareness grows, more money is expected to flow into mutual funds and pension funds.
And where will this money go? You guessed it right – straight into the financial markets.
So, next time you see the Sensex and Nifty rallying, give yourself a pat on the back.
Your PF contribution, along with that of millions of other Indians, is making waves in the stock market.
It's a testament that when individuals invest in their future, the entire nation reaps the benefits.
In a nutshell, your retirement fund isn't just sitting pretty; it's actively powering the upward movement in the stock market.
And with the increasing shift from active to passive investment strategies, the future looks brighter than ever.
This means you, dear reader, can also hitch your wagon to this rising star. Don’t delay your financial planning and do not falter on your investment process.
Investment discipline and asset allocation is key to building wealth.
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