Your PF money to help ETFs reach $200 billion by 2026, Morgan Stanley says

Exchange-Traded Funds (ETF) are expected to accumulate $200 billion, a 30-fold jump from the current level, by 2026. The credit for this robust growth will go to rising flows into provident funds, a Morgan Stanley report said.  

ETFs are securities that are although tracked as a commodity, or an asset, can be traded as any ordinary stock on an exchange.

When Modi-government formed in 2014, the new Labour Ministry had mandated a minimum equity investment for its annual inflow for employee provident funds (EPF). 

Morgan Stanley in its research report pointed out that over the last two years, the Employees' Provident Fund Organisation (EPFO) has invested close to Rs 235 billion in equities via the ETF route. The labour ministry has increased the allocation to 15% for F2017-18. This could imply additional flows of Rs 300 billion into equities via ETFs.

Ridham Desai and Sheela Rathi, Analysts at Morgan Stanley, in the report mentioned Provident Fund (PF) flows have increased by 21% over the last five years and the trend is likely to continue for next 10 years. 

The duo pointed out that the rise in allocation to equity investments by PF jumped from 5% in 2015 to 10% in 2016 and 15% in 2017. This rise is expected to touch 20%. This flow is directed into equities via domestic ETFs.

"From a relatively small size of US$100 million in 2009, ETF assets have grown to US$8.2 billion in size in a span of eight years. We expect ETFs in India to gain further traction, as provident funds are likely to continue channeling their investments into equities via ETFs", the duo said. 

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