EPFO cannot invest funds in equities: Labour Ministry

It will be allowed to invest up to 55% of its funds in debt securities issued by banks and financial institution and other body corporates

The Labour Ministry has relaxed investment norms for retirement fund manager EPFO, but refrained from allowing the body to invest a part of its huge corpus of around Rs 5 lakh crore in equity markets.

According to a recent notification of the ministry, the Employees' Provident Fund Organisation (EPFO) will be allowed to invest up to 55% of its funds in debt securities issued by banks and financial institution and other body corporates.

As per the practice, EPFO parks its funds in accordance with the investment pattern notified by the labour ministry.

Earlier, as per the investment pattern notified by the Ministry in July, 2003, EPFO was allowed to invest up to 30% of funds in PSU debt.

The notification, however, will not be applicable to private PF trusts regulated by EPFO. The Ministry would issue a separate notification for these trusts as was done way back in 2003. There are around 2,700 such trusts which manage around Rs 2 lakh crore social security funds.

The Finance Ministry has long been pitching for investment of EPFO funds in equity markets to maximise the yields on investments. However, following strong opposition from unions against the volatile nature of investments in stocks, EPFO did not opt for equity investment.

The Finance Ministry in its investment pattern for the EPFO issued in 2005 and in 2008 had given an option to the body of parking a part of its funds in equities. It had allowed the EPFO to invest up to 5% in equity in 2005 and later enhanced that limit to 15% in 2008.

The new investment pattern also allows EPFO to invest up to 5% of its corpus into money market instruments, including units of mutual funds, equity linked schemes regulated by Securities and Exchange Board of India.

The new investment norms also provide for parking up to 55% of the EPFO funds in a new category comprising government and state bonds.

Earlier, the body was required to invest 25% of funds in government bonds and 15% in state bonds.

EPFO has a subscribers base of over 5 crore across the country. It has provided a rate return of 8.5% on PF deposits in 2012-13. The interest rate for the current ficsal has not been announced so far.