Bombay Stock Exchange
The Bombay Stock Exchange (BSE) building is reflected on a glass window as people look at a large screen displaying India's benchmark share indexReuters

India's Employees Provident Fund Organisation (EPFO) is investing in the country's stocks for the first time in its 64-year history, as the state-run pension fund looks to enhance its returns.

Though not substantial, the EPFO is bringing in a paradigm shift in the way it manages the money accumulated from several millions of people employed in India.

The Rs 8.5tn (£86bn, €122bn, $133bn) pension fund initially plans to invest 5% of its incremental inflows into selected exchange traded funds (ETF), and the share will gradually be increased to 15% in future. With the EPFO expected to receive incremental inflows of about Rs 1tn in 2015, the initial investment is pegged at Rs 50bn.

Exempted trusts are expected to contribute to the investment, taking the total sum to Rs 70-80bn.

The pension fund has so far been investing in fixed-income securities.

"It was time to bring innovation in the way the funds of EPFO are managed," Bandaru Dattatreya, minister of state for labour, was quoted as saying by India's Economic Times.

"EPFO has taken its first step to enhancing its return by investing in equities."

The labour ministry had issued a notification, directing the EPFO to invest 5-15% of its incremental corpus in equities.

The investment by the EPFO is expected to be beneficial for the equity markets with improved liquidity and increased confidence among retail investors.

Meanwhile, the pension fund looks to boost its returns by investing in stock markets, which are expected to experience high growth in line with the economy.

The fund will initially invest in two ETFs managed by SBI Mutual Fund – 75% in SBI Nifty ETF and 25% in SBI Sensex ETF.