Breaking new ground in pension reforms, the government on Friday allowed private-sector provident funds to tap the equity markets and corporate debt. The move, valid from April 1, 2005, is expected to not only give some degree of flexibility to private PFs, but could also see funds to the tune of Rs 20,000 crore flow into the stock markets.The new norms specify that non-government provident funds will be able to invest up to 5 per cent of their total portfolio (estimated at around Rs 1,35,000 crore) into the equity market. Moroever, they can put in 10 per cent in corporate debt and/or equity-oriented mutual funds.At present, the government is giving an annual return of 9 per cent on its PF, but getting only 6-7 per cent from the deployment of these funds. The government is meeting the deficit from the exchequer.The non-government PFs are finding it difficult to match the rate being given by the government. With even a limited percentage of equity investments, they can look at better returns.The government also announced new norms for exposure to government securities, specifying that the PF cannot have more than 5 per cent exposure to an individual mutual fund for government securities (or gilts). PF trustees will also be allowed to trade at least 10 per cent of the total portfolio in government securities on marked-to-market basis. THE NEW PARADIGM
