Govt allows investing 5% of EPFO corpus in stock markets

Move will result into a flow od Rs 5,000 crore in the markets

The government has allowed retirement fund body EPFO to invest 5% of its corpus in exchange traded funds which will result into an inflow of around Rs 5,000 crore into the stock markets during this fiscal.

Labour Ministry has notified new investment pattern for the Employees' Provident Fund Organisation which allows the body to invest 5% of its funds into ETFs.

"We will invest 5% of the investible funds of EPFO into the ETF. The new investment pattern has been notified about two-three days ago," Labour Secretary Shankar Aggarwal told reporters here.

As per estimates, the EPFO's incremental deposits for 2014-15 would be around Rs 80,000 crore.

During the current fiscal, the incremental deposits could be around Rs 1 lakh crore as the body had increased the monthly wage ceiling for coverage under its social security schemes to Rs 15,000 from Rs 6,500 in September last year.

Elaborating further, Aggarwal said, "We will begin by one% and go up to 5% by the end of this financial year. They (EPFO) have to reach the figure of 5% by the end of this financial year."

He further said: "The Finance Ministry had advised us to invest 5-15% of corpus in equity market. We are entering into the equity market for the first time, therefore, we are a little cautious.

"It is hard earned money of the employees. We cannot take that kind of risk (investing 15% of corpus in equity). By end of this fiscal year we will touch a figure of 5%."

Aggarwal added: "We have to begin investments in ETF only. We will decide how much proportion we will invest in PSU ETFs. If it is in the interest of workers then we will do that."

Another Labour Ministry official said: " The Ministry will bring two notifications. One for the unexempted firm which are managed by the EPFO and another for exempted firms which run their PF trusts for managing their workers funds and PF accounts."

He added: "As per the new investment norms notified for exempted firms, they can invest minimum of 5% into equity and equity-related instruments which can be up to 15% of their corpus."

Earlier, the EPFO, which has over 6 crore subscribers, has been investing primarily in state and central government securities.

Unionists had opposed any investment in equity or equity-related instruments during the meeting of Central Board of Trustees -- EPFO's apex decision making body -- on March 31.

The Finance Ministry has been pitching to park a part of EPFO corpus in the stock market.

It had recently notified an investment pattern for non-government provident funds to enable them to park a part of their funds in stock market.

The new norms prescribe "investment of minimum 5% and up to 15% of the investible funds in equity and equity-related instruments.