The Union Budget for 2018-19 may likely announce a hike in investment limits for all non-government provident funds, superannuation, and gratuity funds in stock market-related instruments to at least 25 per cent from 15 per cent of its incremental corpus at present, sources said.
The move may benefit subscribers of schemes under Employees’ Provident Fund Organisation (EPFO), Pension Fund Regulatory and Development Authority, and provident fund trusts managed by private firms.
According to sources, the likely announcement in the Union Budget to increase equity investments by provident fund bodies prompted the EPFO to postpone the meeting of its finance, investment, and audit committee (FIAC) that was slated to be held on Wednesday.
“The FIAC was supposed to meet on Wednesday. However, there are likely chances that the finance minister may announce a hike in equity investments prescribed for provident fund bodies from 15 per cent at present. The meeting has been postponed and will be now held after the presentation of the Union Budget,” said an FIAC member. The FIAC is headed by EPFO’s Central Provident Fund Commissioner V P Joy.
At present, all non-government provident funds, superannuation, and gratuity funds are required to invest 5-15 per cent of its yearly corpus in equity and equity-related instruments such as exchange-traded funds (ETFs) and exchange-traded derivatives.
The government had, for the first time, allowed such funds, including the EPFO, to invest in the equity market in 2008. In April 2015, the government, however, revised the investment pattern, asking the EPFO and other such funds to invest at least five per cent and up to 15 per cent in equity.
At present, the EPFO invests 15 per cent of its incremental corpus in ETFs. Till November 30, the EPFO had invested Rs 354 billion in ETFs that gave a notional return on investment of 18.9 per cent. The return is notional at present as the EPFO is yet to notify guidelines to subscribers to avail benefits of the equity investment by liquidating the ETF investments. The EPFO has an annual incremental corpus of Rs 1.2 trillion at present.
The EPFO started investing five per cent in ETFs in August 2015 that was gradually increased to 10 per cent in September 2016 and later to 15 per cent in November last year. The investment pattern notified by the finance ministry has to be approved by the EPFO’s highest decision-making body, the Central Board of Trustees, headed by Labour Minister Santosh Gangwar.
*As on November 30, 2017 EPFO: Employees’ Provident Fund Organisation ETF: Exchange-traded fund | CPSE: Central public sector enterprise | Source: Rajya Sabha