The traditionally risk averse Employees’ Provident Fund Organisation is likely to take a small start towards investing in equities, deploying close to Rs 6,000 crore into the stock markets over the course of the next year.
According to the plan being finalised, the EPFO is likely to invest 1 per cent of its fresh fund flows into exchange traded funds, gradually taking it up to 5 per cent over the course of one year.
The issue was taken up for discussion at a meeting of the EPFO’s apex decision making body — the Central Board of Trustees on Tuesday, where state governments as well as employer representatives backed the plan even as trade union leaders opposed it demanding at least a government guarantee on returns.
While no formal decision was taken, the labour ministry made it clear that it would take the final call on following the new investment pattern notified by the finance ministry that comes in to force from Wednesday and mandates a minimum 5 per cent to 15 per cent exposure in equities and equity related instruments.
“The new investment pattern will be notified very soon for the EPFO,” said Shankar Aggarwal, secretary, ministry of labour and employment and vice-chairman, CBT, even as labour and employment minister Bandaru Dattatreya who chairs the CBT asked the opposing trustees to re-consider their views.
“The Central government has notified the pattern of investment and it is felt that it is binding on the EPFO as well,” said a senior PF official.
The plan to invest in ETFs was earlier approved by the Finance Investment and Audit Committee of the EPFO that met last week to examine the new investment pattern. “FIAC felt that this sub category (ETF) may be considered by investing initial amount of about one per cent , which may gradually be increased to five per cent by the end of the year,” said the minutes of the meeting.
The move is also likely to help the EPFO improve its returns that has been paying subscribers a return of 8.75 per cent in 2014-15.
The issue was also raised by Central PF Commissioner KK Jalan during the course of the CBT meeting when he pointed that the recent investment of Rs 2 lakh crore by LIC to railways is at a rate of 7.8 per cent, while investing in NHAI bonds would give returns of about 8 per cent. “We don’t want to invest at that rate,” Jalan stressed.
However, Ashok Singh, national vice president, INTUC and member CBT said, “ We don’t agree with the proposal as it is the workers’ money. It does not belong to the government. If it wants to invest in equities, it must guarantee a return as well.”
Meanwhile, the labour and employment ministry is set to go ahead with fresh amendments to the EPF and Miscellaneous Provisions Act, 1952 that would provide employees an option to choose between the EPF and National Pension System.
The decision was taken at a meeting of the CBT and sources said the Bill would be tabled in Parliament when it reconvenes next month.