The finance ministry has proposed radical changes in the investment guidelines for Employees Provident Fund Organization (EPFO), including doubling the permissible level of investments in equity to 10% and allowing part of the corpus to be invested in term deposits in private banks and rupee bonds of multilateral agencies such as the World Bank.
The proposals are being made in view of the developments that have taken place in the market and economy, said a finance ministry statement, which also invited comments on them within the next month.
EPFO, the government body that provides social security for its 40 million subscribers, manages more than Rs2 trillion under three different schemes. Current guidelines mandate that the EPFO invest 25% and 15% of its corpus in central and state government securities, respectively; 30% in public sector bonds; and the remainder in any or all of the three aforementioned avenues. The Central Board of Trustees (CBT) of the EPFO had earlier rejected a proposal to invest up to 5% of the corpus in equities, as they felt the primary emphasis should be on directing investments into the safest options.
The CBT will discuss the new proposals of the finance ministry in its next board meeting in October, said a trade union representative of the CBT who did not want to be named.
The trade union representatives would oppose the new proposals, particularly the option to invest up to 10% of the corpus in equity, the union representative added.
The new proposals allow the fund manager to invest in individual stocks, but restrict the pool from which they can choose. The fund managers are allowed to invest only in stocks that figure in the BSE Sensex and NSE Nifty, benchmark indices of the Bombay Stock Exchange and the National Stock Exchnage, respectively, or in equity-linked schemes of mutual funds regulated by Securities and Exchange Board of India.
Other key proposals made have to do with increasing investment options to private bank deposits and rupee bonds issued by multilateral agencies such as the World Bank and the Asian Development Bank.
The new investment options have been balanced by a reduction in the mandatory level of investment in central and state government securities from the existing level of 40% to 35%. Within the scope of mandated investments in central and state government securities, the proposals have brought in securities that are guaranteed by multilateral agencies. The new proposals, while reducing the mandated investments in government securities also increases the scope of the securities.
CBT members had earlier said that, given the size of the corpus of the funds managed by EPFO, there were not enough government securities available in the market.