EPF money may be invested in capital market

EPF money may be invested in capital market

New Delhi: With trade unions making a strong demand for higher interest on Employees Provident Fund money, the EPF Board at its meeting later this month is likely to examine the option of making some investment in the capital market before deciding the rate for 2007-08.

The Central Board of Trustees of the EPF has decided to pay 8.5% interest rate to the four crore subscribers for 2006-07 and the rate for the current fiscal would be discussed at the next meeting of the EPF Board, EPF sources said.

Trade Unions are seeking higher returns on the EPF money at a time when fixed deposits in banks were fetching higher interest. Commercial banks offer up to 9.5% returns on fixed deposits depending on the tenure.

With a boom in the stock market, the EPF Board might consider the proposal to invest up to 5% of its corpus in the capital market.

The proposal, which had come up at the EPF CBT meeting in July, however, did not get the nod of the Board as members, mostly belonging to Leftist Trade Unions were opposed to investing any money in the capital market fearing that it could crash any moment.

But now the situation being different, the proposal might be re-examined and the bull run could take away some string from the argument of the Trade Unions against investing in the capital market.

Trade unions have not been happy with the EPF board’s decision to recommend 8.5% interest rate for 2006-07 and demanded 9.5%.

“There was a consistent demand from trade unions to hike the rate over 9%, on the grounds that EPF subscribers cannot be paid less than the market rates in the scenario of hardening interest rates," they said.

As the Sensex recently touched the 20,000-mark, the Trade Unions have started believing that investing a part of the EPF money in the capital market could be a wise decision.

At a time when banks are paying even up to 10% interest rate annually, government should come forward to support the board to pay 9.5% interest rate by raising administrative rate of interest on Special Deposit Scheme (SDS), unions had said while fighting for higher interest rates.

The Employees Provident Fund has a corpus of around 1,04,000 crore as on 31March 2007 and a major chunk of it is parked in the Special Deposit Scheme (SDS), earning only 8% interest for the fund.

Sources said the EPFO would use fund managers to manage its capital market investments that would mostly be made in blue-chip companies and Mutual Funds.