EPFO remains indecisive over investing funds in stock markets

I / New Delhi December 31, 2009, 16:06 IST

The country's largest retirement fund, Employees' Provident Fund Organisation (EPFO), remained indecisive throughout the year 2009 on investing part of its huge corpus of Rs 2.57 lakh crore in stock markets, an important step which will hang in balance for some more time.

Even as the Finance Ministry officials batted strongly for stock market investment, the trade union representatives mounted their opposition and stalled the proposal at least for the time being.

The issue of allowing EPFO to park 15 per cent of its corpus in stock markets came up for discussion and decision at the EPFO's advisory body the Finance and Investment Committee (FIC) on March 26 but could not find favour with the advisory body.

Under the new investment pattern the Finance Ministry had proposed in August, 2008 that up to 15 per cent of the EPFO's corpus should be invested in companies listed on the Bombay Stock Exchange and the National Stock Exchange and also in the equity-linked schemes of the Sebi-regulated Mutual Funds.

The proposal faced strong opposition from the employees' representatives, including Hind Mazdoor Sabha Secretary A D Nagpal and Bhartiya Mazoor Sangh President B N Rai.

Following the FIC rejection, the EPFO trustees also voiced against the proposal in a CBT meeting on July 4. The Labour Minister Mallikarjun Kharge who also heads the CBT and his deputy Harish Rawat could not approve the proposal.

After the meeting Kharge said: "We would separately look into it (investing funds in stock markets). Naturally safety and security is the most important issue and the returns are also important for the employees. Looking at all those things we (will) decide."

When the proposal lost its ground in the trustees' meeting, a Finance Ministry Joint Secretary K P Krishnan came up with modified proposal of allowing EPFO to invest 3-5 per cent of its funds in stock indices.

Krishnan further said long-term investments in stock indices would generate healthy returns to the EPFO with negligible risk.

Agreeing with Krishnan, the then Labour Secretary Sudha Pillai asked the Finance Ministry to prepare a detailed note on investment in stock indices to help the trustees take a final view.

This proposal of investing 3-5 per cent in stock indices was once again discussed in FIC meeting on August 18, where EPFO officials made a detailed presentation.

"Index based strategy for investment in equities would be most suitable for EPFO's need," said an EPFO official in a presentation before FIC.