EPF seeks flexible investment plans

EPF seeks flexible investment plans
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First Published: Mon, Mar 12 2007. 12 18 AM IST
Updated: Mon, Mar 12 2007. 12 18 AM IST
The board of Employees Provident Fund Organization (EPFO) recommended lifting the statutory investment pattern on its corpus in an attempt to provide better returns on the compulsory savings of its 40 million subscribers.
The central board of trustees of the fund took this decision in the same meeting where it deferred a decision to announce an interest rate on its corpus for the financial year 2006-07.
“If the interest rate is being deferred again and again in this way it will adversely impact people who may not have any other savings. This is not healthy for the people and we will raise this issue in Parliament,” said Sushma Swaraj, Bharatiya Janata Party leader and Rajya Sabha member.
The board decided to defer a decision on interest rate largely because the EPF is in a position to pay just 8% on its Rs96,774.60 crore corpus, at a time when some banks are willing to offer over 9% on five-year deposits.
“I must remind you that we (Left parties) want 9.5% interest and not 8.5%. If the last announced rate is not applicable to those who retired in 2006 and 2007, then we will have to find a way to ensure that employees do not suffer,” said A.B. Bardhan, Communist Party of India general secretary. EPFO, which was set up to provide social security to the workforce, is mandated to invest 25% and 15% of its corpus in Central and state government securities, respectively. Apart from these, 30% of the EPF currently goes into public sector bonds. The remaining 30% has to be invested in either of the three categories open to the EPFO as per the government’s diktat.
The board now wants the minimum investment norms to be “replaced with flexibility,” said W.R. Varda Rajan, a member of the board, who is also the secretary of the Centre of Indian Trade Unions.
Once the government issues notifications to put the board’s recommendation into practice, the corpus will be divided between Central and state government securities, public sector companies bonds and bonds of both public sector and private sector banks.
The board rejected the government’s suggestion that it consider investing up to 5% of its corpus in the stock market, said Oscar Fernandes, labour minister and head of the board, after the board met on Saturday.
The safety of the fund is more important than yield, we’re averse to risk, explained Varda Rajan about the board’s decision to avoid the stock market. One reason why EPFO is not able to provide more than 8% on its Rs96,774.60 crore corpus this year is that about 54% of the corpus is parked in the Union government’s Special Deposit Scheme (SDS). The interest rate on SDS, which’s referred to as the administered rate of interest, has been frozen at 8% since 2002.
(pragya.s@livemint.com)
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First Published: Mon, Mar 12 2007. 12 18 AM IST