EPFO seeks approval for higher equity exposure

The Employees Provident Fund Organisation (EPFO) will be seeking approval from its apex decision-making body, the Central Board of Trustees (CBT), to implement a finance ministry order to invest up to 15 per cent of the fund in equity. The new pattern that was notified last year comes into force from April 2010.

The matter is currently being considered by the Finance and Investment Committee (FIC), a key advisory panel of the fund, which is scheduled to hold a second meeting next month on the issue. The committee's recommendations, however, are not binding.

The order will apply to EPF only after it gets board approval. Of the Rs 35,000 crore to Rs 40,000 crore that is added to the EPF every year from its 50 million subscribers, the EPFO will be free to invest up to 15 per cent in scrips of companies listed on the Bombay Stock Exchange and National Stock Exchange . The EPFO has a corpus of Rs 2.57 lakh crore.
 

SHARED RISK (Upper limit as % of corpus)
Instrument	Present pattern	Proposed pattern
G-secs	40	55
PSU bonds	60	40
BSE/ NSE scrips	5*	Up to 15**
Money market instruments	5	5
*Optional;  ** Mandatory

Employees' representatives on the CBT have been opposed to investment in stock exchanges.

THE notification changes the pattern of investment of PF funds drastically from the prevailing pattern which was put in place in 2005 (see table).

Currently, however, the 5 per cent investment option in BSE- and NSE-listed scrips is not being utilised fully. FIC member and Hind Mazdoor Sabha secretary A D Nagpal said even 5 per cent investment a year would mean Rs 1,000 crore. All unions, including Congress-affiliated Indian National Trade Union Congress, are opposed to the proposal, he said.

The existing pattern also allows up to 60 per cent funds to be invested in bonds of public sector undertakings, of which half the EPF was free to invest in securities of public sector financial institutions. This provided maximum flexibility and returns, said Nagpal. This has been reduced to 40 per cent.

Government securities, on the other hand, have been given an inordinately higher weightage of maximum 55 per cent, he said. It would be an appealing idea for the government because it is running a high fiscal deficit, said W R Varadarajan, CBT member representing CPM-affiliated Centre of Indian Trade Unions.

Adds Varadarajan, “It is a matter of principle. It may be a small amount now, but once approved, nothing can stop the government from raising the percentage of investment in equity. We will not allow it at any cost.